Jankar v Dellmain - [2009] NSWSC 766

No judgment structure available for this case.

CITATION: Jankar v Dellmain & Ors [2009] NSWSC 766

HEARING DATE(S): 3 June 2009

JUDGMENT DATE :
4 September 2009

JURISDICTION: Equity

JUDGMENT OF: Slattery J at 1

DECISION: Orders:
(1) The third defendant pay the plaintiff's costs of the interlocutory process and the proceedings.
(2) The third defendant pay the first defendant's costs of the interlocutory process and of the proceedings on an indemnity basis.

CATCHWORDS: CORPORATIONS - winding up - application for winding up by court - winding up conceded on the just and equitable basis under s 461(1)(k) Corporations Act 2001 - winding up would have been justified under s 461(1)(e) Corporations Act 2001 had it been fully contested - a winding up under s 461(1)(f) Corporations Act 2001 would also have been justified - third defendant engages in oppressive conduct - third defendant unreasonably causes the first defendant defend the proceedings - COSTS - an order that the third defendant pay the plaintiff's costs - an order that the third defendant indemnify the first defendant in respect of its defence costs

LEGISLATION CITED: Corporations Act 2001
Civil Procedure Act 2005

CATEGORY: Principal judgment

CASES CITED: Ali v Nationwide News Pty Limited [2008] NSWSC 183
Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194
Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489
Baillieu Knight Frank (NSW) v Ted Manny Real Estate Pty Limited (1992) 30 NSWLR 359
Booker v You Run the Business (2008) FCA 1672
Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2005] NSWSC 495
Consolidated Byrnes Holdings Limited v Hardel Investments Pty Limited (2009) FCA 399
Degman Pty Limted (in liquidation) v Wright (1983) 2 NSWLR 354
Ebrahimi v Westbourne Galleries Limited (1973 ) AC 360
Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13
HSH Hotels (Australia) Limited v Multiplex Constructions Pty Limited [2004] NSWCA 302
Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169
In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151
Johnny Ocean’s Restaurant v Page (2003) NSWSC 952
Kinsella v Russell Kinsella Pty Limited (1986) 10 ACLR 395
Latoudis v Casey (1990) 170 CLR 54
Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692
NMFM Property Pty Limited v Citibank (No 2) (2001) 109 FCR 77
Ohn v Walton (1995) 36 NSWLR 77
Oshlack v Richmond River Council (1998) 93 CLR 72
Quinlan v Essex Hinge Co Limited [1996] 2 BCLC 417
Re Back 2 Bay 6 Pty Limited (1994) 12 ACSR 614
Re Fountain Selected Meats (1988) 81 ALR 397
Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin [1997] HCA 6; (1997) 143 ALR 1; (1997) 186 CLR 622
Re Struthers; Paci Pty Limted (In liquidation) (2005) 64 NSWLR 392
Ruhani v Director of Police (2005) 222 CLR 489
Shum Yip Properties Development Limited v Chatswood Investment & Development Co Pty Limited (2002) 40 ACSR 619

PARTIES: J & M Jankar Pty Limited (Plaintiff)
Dellmain Pty Limited (ACN 098 056 430) (First Defendant)
Nature Meat Co Pty Ltd (ACN 097 846 369) (Second Defendant)
Alain Della (Third Defendant)

FILE NUMBER(S): SC 5983/08

COUNSEL: Mr C Harris SC (Plaintiff)
Mr J T Johnson (Third Defendant)

SOLICITORS: Colin Biggers & Paisley (Plaintiff)
Creagh & Creagh (Third Defendant)

- 2 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

SLATTERY J

FRIDAY 4 SEPTEMBER 2009

5983/08 J & M JANKAR PTY LIMITED v DELLMAIN PTY LIMITED (ACN 098 056 430); NATURE MEAT CO PTY LTD (ACN 097 846 369); and ALAIN DELLA

JUDGMENT

1 HIS HONOUR: In these proceedings the plaintiff, J and M Jankar Pty Limited ("Jankar”) seeks orders under ss 461(1)(e),(f) and (k)of the Corporations Act 2001 (“the Act”) for the winding up of the First Defendant and under s 472 of the Act for the appointment of a liquidator to the Company. Jankar brings this application by Further Amended Originating Process filed on 18 February 2009 joining Dellmain Pty Limited ("Dellmain") as first defendant, Nature Meat Co Pty Ltd (“Nature Meat”) as second defendant and Alain Della as third defendant.

2 By the time these proceedings came before the Court for hearing on 3 June 2009 each of Jankar and Nature Meat owned 240 issued shares in Dellmain. Gordon Maxwell Currie is the sole director of Jankar. Mr Della is the sole director of Nature Meat. Both Mr Currie and Mr Della are the directors of Dellmain. As the more detailed account of the facts below makes clear, by the time this matter came on for hearing the interests of Jankar and Nature Meat in Dellmain were irreconcilably opposed to one another as were the management outlooks of their respective principals, Mr Currie and Mr Della. Notwithstanding these differences on 3 June 2009, Mr Johnson of counsel who appeared for Nature Meat and Della, informed the court that both these defendants consented to the orders being sought by Jankar for the winding up of Dellmain.

3 Notwithstanding Nature Meat’s and Mr Della’s consent to the orders sought by Jankar, the Court must be satisfied in all the circumstances a winding up order should be made. To that end I was taken by counsel for Jankar, Mr Harris SC, through a bundle of documents (Exhibit A) which extracts the principal documents of relevance to the issue of making a winding up order.

4 After being satisfied of the consent of Peter Krejci of BRI Ferrier NSW Pty Ltd dated 1 June 2009 to being appointed liquidator of Dellmain, I made orders for the winding up of Dellmain under s 461(1)(k) of the Act in a separate short judgment on 3 June 2009. At the time of making those orders I reserved the question of whether or not the winding up might also be justified under ss 461(1)(e) or (f). On 3 June 2009 I indicated that when publishing my reasons for making the winding up order and after a more detailed review of the evidence I would indicate whether or not the winding up order could be made under ss 461(1)(e) and (f) of the Act.

5 The Court made orders on 3 June 2009 and deferred providing reasons. It did so because there were two factors that indicated that if a winding up order were to be made that it should be made promptly and should not await the publication of reasons. First, whilst not conclusive, there was strong evidence indicating Dellmain’s insolvency, thereby bringing into greater prominence the interests of Dellmain's creditors. There was a need to act expeditiously to make a winding up order, if one was going to be made.

6 Second, I was informed by the parties on 3 June 2009 that a creditor of Dellmain, a Mr Mannix, had already commenced proceedings in the District Court of New South Wales and that those proceedings were listed for hearing on the following day, Thursday 4 June 2009. Making a winding up order on 3 June 2009 rather than at a later time would avoid both Mr Mannix and Dellmain wasting further legal and financial resources on those District Court proceedings.

7 At the hearing on 3 June 2009 Jankar also foreshadowed that it sought three special costs orders in the proceedings, namely that:

a. Della pay Jankar's costs of the interlocutory process on an indemnity basis;
b. Della pay Jankar's costs of the proceedings on an indemnity basis; and
c. Della indemnify Dellmain in respect of costs and expenses incurred or paid by Dellmain in relation to the proceedings.

8 I directed the provision of written submissions in relation to costs. Jankar provided submissions on costs and Mr Della provided submissions in reply. No submissions were provided on behalf of Nature Meat as Jankar did not seek cost orders against it. This judgment contains the reasons for the making of orders on 3 June 2009 for the winding up of Dellmain and the orders as to costs in the proceedings. It is first necessary though to provide some background about the relationships between the parties and the events that led to the current litigation.

Background

9 Dellmain owns land at Collarenebri on which an abattoir has been constructed. The abattoir does not operate and has never operated. Dellmain has never traded and has no income. Work was done by Dellmain's principals to obtain research and development grants and to obtain development approvals, so that the abattoir could commence operations at the site. These efforts were unsuccessful.

10 Mr Della controlled Dellmain until 12 December 2008 when Mr Currie was appointed a second director. That appointment resulted from the commencement of these proceedings on 4 December 2008 and the making of consent orders by the court on 8 December 2008. Thereafter the affairs of Dellmain have been under the control of Mr Della and Mr Currie but in circumstances that are best described as a management deadlock. It is necessary to go back in time to early 2007 to understand how that deadlock arose.

11 On 17 April 2007 Jankar paid $25,000 to Messrs Creagh and Creagh, the solicitors for all the defendants, on account of Jankar's prospective purchase of shares in Dellmain. This payment was a token of good faith made by Jankar in negotiations that Mr Currie was then conducting with Mr Della, with a view to Jankar becoming a shareholder in Dellmain.

12 In the course of these negotiations, Jankar advanced more money to Messrs Creagh and Creagh. In May 2007 Mr Currie and Mr Della executed a "Direction and Authority" recording that Jankar was negotiating the terms of an investment in Dellmain to enable Dellmain to operate the proposed abattoir. The parties acknowledged that a formal shareholders agreement would be necessary and envisaged that "essential features" of the shareholders agreement would involve Jankar obtaining a shareholding in Dellmain, that Dellmain would be free of all debts and encumbrances and that Dellmain would secure an agreement to process goat meat. To assist in achieving those three "essential features" the Direction and Authority provided for Jankar to pay $300,000 to Messrs Creagh and Creagh and authorised those solicitors to make certain payments for the purposes of achieving those "essential features". In the event that the negotiations did not proceed to finalisation the $300,000 would be repayable to Jankar, less any monies expended pursuant to the Direction and Authority. A further $275,000 was paid to Creagh and Creagh bringing the total paid by Jankar to $300,000.

13 No written document entitled “Shareholders Agreement” was ever executed between Jankar and any other shareholder of Dellmain although a draft was prepared. However, an agreement was made on 25 September 2007 that in addition to the $300,000 already paid, Jankar would pay a further $700,000 to Dellmain. In exchange Jankar would be issued 50% of the share capital of Dellmain. This agreement is best evidenced in an e-mail dated 25 September 2007 sent by Messrs Creagh and Creagh to Mr John Ludeke, a director of Jankar, in which those solicitors said to him:

"Upon payment of a sum of $700,000 to be provided by Bank Cheques as directed below, we are instructed that our client will arrange to transfer/issue shares representing 50% of Dellmain's issued capital. The arrangement will have for net and a final effect to leave your entity with 50% ownership of Dellmain and associated service contract as discussed."

14 The bank cheques were drawn as requested, bringing the total paid by Jankar to Creagh and Creagh to $1 million. Notwithstanding the provision of this substantial sum of money from Mr Currie, shares were not issued by Dellmain to Jankar at that time. Jankar seeks the payment of the costs of these proceedings by Mr Della personally rather than by Dellmain and on an indemnity basis because, it is submitted, there was no excuse at any time for Dellmain's failure to issue the shares when it was under the control of Mr Della.

15 As will appear below, it is to be inferred from later correspondence that Mr. Della seemed to hold the view that the shares in Dellmain did not need to be issued to Jankar immediately. There is little in the contemporaneous correspondence that would justify this opinion.

16 Notwithstanding that no share capital had been issued to Jankar, in September 2008 Mr Della introduced some Malaysian purchasers of Jankar's prospective shares in Dellmain. Discussions with these prospective Malaysian purchasers continued for many months and were thought by Jankar to be continuing when this matter came on for hearing. Nothing concrete emerged from these discussions.

17 Frustrated by the non-issue of shares Jankar commenced making requests that Dellmain give an account of its expenditure of the $1 million advanced to Creagh and Creagh. How Dellmain proposed to spend the $1 million, particularly the last $700,000 was defined by Mr Della himself who confirmed in his e-mail of 3 October 2007 that of the $700,000 final instalment $520,000 should be paid by bank cheque to Provident Capital, $100,000 to Creagh and Creagh and $80,000 to Dellmain. In exchange for this Mr Della confirmed "the payment of $700 K secures 50% of the company currently known as Dellmain".

18 Once these funds were advanced, Jankar found that gaining an explanation for Dellmain’s actual dealings with them proved more difficult than it had expected. On Friday 24 October 2008 Jankar made the first of many requests for an account of this expenditure. On that day Mr Currie requested a response from Robert Pearson, a solicitor at Creagh and Creagh, in the following terms:

"I am having to do a presentation to a meeting of directors of ACM. Therefore I need from you the exact details of the disbursement of the $1 million we provided in relation to the Collarenebri operation to the trust account and also the current balance of the trust account which has been managed by your good self on our behalf. Robert I need these details by close of business Monday 27th of October."

Details were not supplied by the time requested.

19 On 29 October 2008 Mr Currie initiated a similar e-mail request to Mr Pearson, copied to Mr Della and Mr Ludeke in which Mr Currie recorded with mounting frustration:

"I spoke with Alan on Monday 27th, he assured me that the information that I requested in relation to disbursement of funds on Friday 24th would be sent to me by Tuesday 28th? At the time of this communication I still have not received these details.... patients (sic) in relation to these matters are long gone, so some response would be appreciated immediately!!!”

20 Mr Pearson did reply by e-mail on 30 October 2008. His explanation was unsatisfactory. Mr Pearson explained that the major components of expenditure included: first, discharging a first mortgage including direct payments, legal fees interest and registration fees amounting to approximately $550,000; second, making payments to extinguish the interests of previous shareholders of approximately $250,000, which also included legal fees; and third, making a debt repayment of approximately $130,000.

21 Mr Pearson’s explanation had several problems, some of which were highlighted by Mr Currie in an e-mail in reply the same evening, 30 October 2008. Mr Currie pointed out that the Provident Capital mortgage had been made the subject of an express direction for payment via a bank cheque in the sum of $520,000, not an amount of $550,000. Mr Currie also offered the view, with some justification, that "this error alone should be reason enough for me to expect some clarification". The correspondence back in September 2007 about the $700,000 investment does not make it entirely clear that $250,000 was proposed to be paid by Dellmain to extinguish the interests of previous shareholders or that it would be applied to make debt repayments of $130,000, although the Provident Capital payment was, from the name of the recipient obviously a paying down of existing debt. Taken together these amounts involved the application of $930,000 ($550,000 plus $250,000 plus $130,000) to reduce debt. Mr Currie stated in the email that evening the courteous and reasonable view that:

“…I was hoping for much more detail than this and certainly better than approximates, could I please have a complete rundown of the payments.”

"More detail on payments and disbursements of our purchase would be very much appreciated."

22 Mr Currie still lacked information from Mr Della about the application of his investment monies. He was still without any shares in Dellmain. Other alarming information about Dellmain’s affairs now began to emerge. In November 2008 Mr Currie first discovered that a Mr Colin Joseph Strauss had relodged for registration and had obtained registration of a mortgage dated 25 March 2004 (dealing number AD 917805Q) over the title to the Collarenebri property. Mr Currie says that he previously knew nothing about this mortgage and did not know that there were already monies owing by Dellmain to Mr Strauss.

23 In the apt words of counsel for Jankar the next "uncomfortable surprise" for Mr Currie was his further discovery in November 2008 that an entrepreneur by the name of Albert Hadid, or Mr Hadid's company Foctel Pty Limited (Foctel), claimed to be an equal shareholder in Dellmain with Nature Meat, under a contract said to have been made between Mr Della and Mr Hadid on 24 May 2006. This May 2006 agreement required that until the appointment of directors pursuant to agreements between Foctel and Mr Della, all the funds paid by Foctel to Dellmain were to be treated as loan funds, that Foctel's equal shareholding with Nature Meat was to be no less than 30% of the total issued shares in Dellmain and finally that no decision materially affecting Dellmain would be taken without the written consent of Foctel. That Foctel claimed to be a shareholder in Dellmain, that Foctel claimed to be owned loan monies of the order of $180,000 by Dellmain and that Foctel had a say in Dellmain's management was all new information to Mr Currie. This discovery suggested to Mr. Currie that Mr Della had been offering shares in Dellmain to a number of parties apart from Jankar without Mr Currie’s knowledge.

24 One of the “essential features” of the shareholders agreement envisaged in the original “Direction and Authority" of May 2007 was that Dellmain would be "free of all debts and encumbrances". Whilst the discovery of Delmain’s apparent obligations to Foctel and to Mr Strauss may not be directly inconsistent with the Direction and Authority of May 2007, because a shareholders agreement was never made, nevertheless it should reasonably be expected that the negotiation of the Direction and Authority would call for Mr Della to disclose these existing obligations of Dellmain to Mr Currie. The failure to disclose these obligations in the negotiations and for a long time after misled Mr Currie about the financial state of Dellmain.

25 These discoveries led to Jankar escalating its enquiries in relation to Dellmain. On 21 November 2008 Mr Currie e-mailed Mr Della recording a meeting that had taken place between them that morning. Mr Currie said that at this meeting he had conveyed to Mr Della his concerns about the manner in which the company was being managed and said in the email about the meeting:

"due to the depth of concern, I offered you the opportunity to resign as a director in favour of my appointment in your stead, however you declined that opportunity."

26 Mr Currie then said in the email that it had come to his attention that:

“there have been numerous instances of failure to keep us informed about significant transactions which have occurred with the company".

27 Mr Currie then listed in the email the following matters for Mr Della’s attention:

“1. You have failed to disclose the existence of a debt claimed against the Company by Mr Albert Hadid notwithstanding that you now claim that the debt is not enforceable.

2. You failed to disclose that the Company was the subject of a statutory demand for payment of debt which then resulted in proceedings being instituted to wind up the Company on a creditor’s petition.

3. Despite numerous requests, you have failed to provide financial statements for the Company.

4. In your capacity as the sole registered Director and Secretary of the Company, you have failed to maintain proper corporate records including required filings with the Australian Securities and Investments Commission.

5. You have failed to account for how funds that J&M Jankar Pty Limited have invested in the Company have been disbursed other than that we are aware $520, 000 was utilised to repay a debt to Provident Capital Limited. The remaining $480, 000 was applied either directly to the Company or by way of deposit to Creagh & Creagh’s trust account.”

28 The two new issues introduced in this email of failing to provide financial statements and failing to maintain proper corporate records became the subject of further requests by Mr Currie. They have also featured prominently in the issues advanced by Jankar in this case.

29 Mr Currie placed the matter in the hands of solicitors, Colin Biggers and Paisley, who wrote to Creagh and Creagh on 26 November 2008 setting out the full history of the matter to that point and expressing Mr Currie's "deep concern" that Dellmain and Mr Della had failed to keep Mr Currie informed about any significant transactions which had occurred within Dellmain within the last year. This letter sought a full accounting in respect of the $1 million advanced by Jankar to Creagh and Creagh. In addition to the non-disclosures already identified in this brief history, the 26 November 2008 letter raised the failure of Mr Della to advise Mr Currie that there had been three separate winding up applications brought against Dellmain as recently as between May and October 2007. Colin Biggers and Paisley also noted that the asset register still did not reflect Jankar's 50% shareholding in Dellmain or that Mr Currie was a director of Dellmain. The solicitors also complained on Mr Currie's behalf that he was being excluded from the business affairs of Dellmain and threatened to commence proceedings unless a response was received by 10am on Thursday, 27 November 2008.

30 Creagh and Creagh's letter in response to Colin Biggers and Paisley on 27 November 2008 contained concessions on behalf of the defendants. Creagh and Creagh took the position that Dellmain's debt obligations to Foctel and Mr Strauss had been paid or were shortly to be paid and that this was part of Mr Della’s plan to achieve the result anticipated in the original Direction and Authority that Mr Currie would hold 50% of a debt free Dellmain. In relation to the issue of shares by Dellmain to Jankar the letter promised immediate action:

“In relation to the issue of shares and notification of ASIC, our client had been under the mistaken impression that your client was content for that to occur once the Shareholders Agreement had been finalized. Clearly however this is an issue of concern, and our client can therefore instruct the company accountant to issue the shares and notify ASIC forthwith.”

31 On 2 December 2008 a final pre-litigation face-to-face meeting took place between the lawyers and clients on the two sides but it failed to produce any resolution. Immediately prior to this meeting Colin Biggers and Paisley reiterated Jankar’s request for an account to be given of the disbursement of the $1 million advanced to Creagh and Creagh. At this meeting Dellmain’s failure to issue shares was left unremedied and the reasons for the failure were unresolved. Jankar indicated its wish to regularise the share position and that "a share transfer be executed today at the meeting". Mr Jankar sought Mr Della's resignation as a director from the board of Dellmain because the company remained in control of Mr Della. In light of the lack of resolution of these issues between the parties Colin Biggers and Paisley foreshadowed an application for the appointment of an external administrator to Dellmain. Jankar initiated legal proceedings to give substance to that indication within days.

32 These proceedings were commenced on 4 December 2008. Given the unremitting failure of Mr Della to respond to Mr Currie’s request for information, his failure to commit to issuing Jankar’s chares in Dellmain and Mr Currie’s concern about the financial state of Dellmain, Jankar had no sensible alternative but to commence these proceedings. They were first returnable before Justice Hammerschlag on 8 December 2008. After short argument before the court on that occasion consent orders were made in the following terms:

“By consent the Court:

(a) 240 shares, or such number of share which would amount to 50% of the issued shares, in the first defendant; and

(b) Registration in the first register of shareholders as the owner of those shares.

(a) allot to the plaintiff 240 shares, or such number of shares as would amount to 50% of the issued shares, in the first defendant; and

(b) issue to the plaintiff a share certificate for the shares.

~~and defendants~~

The court notes the following undertakings by Alain Della personally and on behalf of Dellmain Pty Ltd given through counsel to the Court:

4. Undertakes not to deal with the assets or incur any debts in the name of Dellmain Pty Ltd, other than legal fees properly incurred in the interests of that company between now and 15 December 2008 inclusive.

5. On behalf of himself personally and Dellmain Pty Ltd not to issue or procure the transfer of any shares in Dellmain Pty Ltd between now and 15 December 2008 inclusive, except so as to comply with the order made earlier today.

6. His Honour also notes the undertaking by Mr Della, upon receipt of written consent to act as director of Dellmain Pty Ltd by Mr Currie, to take such steps as are reasonably necessary to procure the appointment of Mr Currie as director of that company.

7. Costs reserved.”

These consent orders solved some of Mr Currie's concerns.

33 Even the orders made by the court on 8 December 2008 did not result in spontaneous action by Mr Della to issue the shares or to attend to the other matters the subject of the orders. Their implementation required further prompting by Mr Currie. On 9 December 2008 Colin Biggers and Paisley wrote to Creagh and Creagh requesting Dellmain's financial records, including financial accounts for the last two years, a list of current creditors of Dellmain, a copy of Dellmain’s aged payable summary and receivables, a profit and loss statement, the Dellmain balance sheet for the period 1 May 2007 to 9 December 2008, recent valuations of the abattoir property, a copy of Creagh and Creagh's trust account statements in relation to money paid on behalf of Dellmain, and documents relating to other specific creditors. Mr Currie’s request for documents to inform him of the affairs of Dellmain was both reasonable and appropriate given the limited information he then had about Dellmain’s circumstances and given that he was about to be appointed as a director.

34 On 10 December 2008 Mr Currie sought to contact Mr Della by mobile telephone to discuss these matters but communication was cut off. Mr Della did not ring back. The same day Mr Currie sent Mr Della a copy of the letter which had been sent earlier that day to Colin Biggers and Paisley. Mr Currie sent a follow-up e-mail at 12:39 pm the same day.

35 At approximately 5:40pm on 10 December 2008 Mr Currie received a letter from Creagh and Creagh and some documents which had been provided by Mr Della in response to the Colin Biggers and Paisley request. Analysis of the letter and the small bundle of documents received established a number of important things for Mr Currie:

(a) Dellmain's accountant was a Mr Val Dann;

(b) no final accounts for the years ending 30 June 2007 or 30 June 2008 had been prepared;

(c) most of the financial material he had requested, including a list of Dellmain’s current creditors, a copy of the aged payable summary for Dellmain, a copy of Dellmain’s receivables, a copy of the profit and loss statement and the balance sheet of Dellmain for the period 1 May 2007 to 9 December 2008 was not available and it was suggested that the material should be sought from Dellmain's accountant;

(d) although Creagh and Creagh’s accounts for professional fees were produced the firm’s trust account statement did not contain a narration of the payments that had been made to or from that account; and

(e) the abattoir was not operating and had not been operating for some time, so no income statements for its operations were able to be produced.

36 These are the only documents that Mr Currie has been able to access in respect of the affairs of Dellmain, other than some documents produced in the court on Monday 8 December 2008 during the interlocutory hearing on that day, as he explains in paragraph 19 of his affidavit of 5 February 2009.

37 On 11 December 2008 Colin Biggers and Paisley again wrote to Creagh and Creagh indicating that the financial information sought in respect of Dellmain was necessary in order for Mr Currie to satisfy himself that Dellmain could pay its debts and that it was solvent.

38 In a telephone conversation between Mr Della and Mr Currie on the morning of 11 December 2008 Mr Currie reiterated his desire to see Dellmain’s accounts so he could see what had happened to the moneys he had invested in the company. In response Mr Della rather curiously said "Creagh and Creagh have these documents, I have no control over this.” This statement provoked an understandable reaction from an increasingly exasperated Mr Currie, who said in response:

"You are a director of the company and you are responsible for the company. It is up to you to instruct your lawyers to provide these documents. I’m so angry with this mucking around. I am in no condition to talk right now, I will call you back."

39 In the course of the same day Mr Currie telephoned Mr Val Dann, Dellmain’s accountant. In that conversation Mr Val Dann confirmed that he had just signed documents giving effect to Mr Currie's appointment as a director. At the same time Mr Val Dann delivered what must have been rather startling news to Mr Currie. He said, "I have no company records; they have all been handed to Alain Della. Alain has those documents for some time." This would have been especially surprising to Mr Currie because Mr Della had given no indication to that point that he had these documents or that he was able to produce them directly to Mr Currie.

40 On 11 December 2008 Mr Currie’s formal consent for his appointment as a director of Dellmain was provided to Mr Val Dann. The shares were issued to Jankar and Mr Currie became a director. Mr Currie's new responsibility as a director for the affairs of Dellmain led to other difficulties for him.

41 At about midday on the same day, 11 December 2008, after Mr Currie's conversation with Mr Val Dann, he spoke again with Mr Della to organise a meeting of both directors with the accountant so that they could get the company's accounts. A joint meeting of this sort was an effective proposal by Mr Currie to try to get to the bottom of the problem of just who did have Dellmain’s records. In response to this proposal Mr Della said,

"There are no accounts. All there is what I have sent to you by the court and through my solicitors Creagh and Creagh.”

42 Any director in Mr Currie’s position would by this time have been likely to have lost confidence both in his fellow director and in the effective administration of Dellmain. Mr Currie lost confidence in both.

43 Since becoming a director of Dellmain Mr Currie has been able to have only two meetings with Mr Della. Neither resembled a directors meeting that was seriously attempting to deal with Dellmain’s affairs. Only Mr Currie and Mr Della were present at the first meeting which took place on 12 December 2008 in the foyer of the Citibank building. Such a location was hardly conducive to a thorough or a private discussion between the two directors about the affairs of Dellmain. As Mr Currie deposes, they had a conversation on this occasion to the following effect:

“I said: ‘This does not look like it is working Alain. Can Dellmain pay its debts? There are multiple wind up applications which have been brought against the company and you and I seem to be at loggerheads.’

Della said: ‘You know I have been working on the Malaysian deal to see you and your company paid out of your shareholding and your position to be replaced.’

I said: ‘Before we get to the Malaysian deal you and I need to make arrangements to provide my accountant with Dellmain’s financial documents, to then go and see him and see if we can makes heads and tails out of the finances of Dellmain.’

44 The Malaysian share purchase proposal was also mentioned by Mr Currie in subsequent telephone conversations with Mr Della as a reason why there was no need to provide the requested financial information just yet. This was not a satisfactory response to Mr Currie’s persistent and reasonable requests for this information. Mr Currie’s responsibility as a director to become familiar with the affairs of Dellmain was now immediate. The Malaysian share purchase proposed was always elusive. On one occasion though Mr Currie attended a meeting with a Mrs Ampalam from Malaysia during which the acquisition by Jankar’s shares in Dellmain was discussed.

45 Once the shares in Dellmain had been issued to Jankar and Mr Currie appointed a director, the interlocutory proceedings for the appointment of a provisional liquidator were no longer necessary. On 15 December 2008 the interlocutory process was dismissed by consent and costs were reserved.

46 The same day Mr Currie sought to become a dual signatory on Dellmain’s bank accounts. He telephoned Mr Della and sought an opportunity to go to the bank to arrange to be made a signatory. Mr Della promised to make the arrangements and to get back to him. After some miscommunications about this issue, on 19 December 2008 Mr Currie became one of the two required authorised signatories on Dellmain's accounts at the Circular Quay branch of the Commonwealth Bank.

47 On the 24th of December 2008 Mr Della left a telephone message for Mr Currie to the effect that the prospective Malaysian purchasers wished to speak with him early in the New Year.

48 On Monday 29 December Mr Currie telephoned Mr Della to confirm the date for a meeting with the Malaysian purchasers during the week commencing 5 January 2009. In the meantime Mr Currie continued his quest for the documents requested from his fellow director.

49 On 30 December 2008 by email Mr Currie requested that Mr Della assist him in the following terms:

"Alan, we need to get the company records you have to my accountant so he can look at them, so we can then have the meeting we agreed to have with regard to going through the records in detail. Please let me know how you want to achieve the delivery of the doc’s, I am happy to pick them up and deliver them to Tony Melrose's office in Castle Hill. I look forward to your preferred instructions.”

50 This courteous letter did not receive an adequate response. Mr Currie had recently acquired responsibilities as a director for the administration of the affairs of the company. The correspondence between Mr Currie and Mr Della on other matters up to that time did not instill confidence in Mr Currie about the administration of Dellmain. Despite the fact that Mr Currie had good reason to make this enquiry there was no response to this e-mail. Any reasonable fellow director in the position of Mr Della must have appreciated that at that particular time Mr Currie needed to be put in possession of this information in order properly to discharge his director’s duties to Dellmain.

51 On 5 January 2009 Mr Currie received a telephone call from Mr Della in which Mr Della said:

"The Malaysians will be putting a proposal to you to buy your shares on Wednesday evening [8 January] and I will contact you the following morning regarding that proposal. If the deal is acceptable there will be no need to provide financial information.”

52 Mr Currie did not hear from Mr Della on 8 January. He telephoned Mr Della but the call was unanswered. On 9 January 2009 Mr Della sent Mr Currie a text message informing him that the Malaysian parties had not sent the proposal in relation to the acquisition of Jankar's shares in Dellmain. If this text message is accepted as a correct statement of the then state of negotiations with the Malaysian parties, this message alone should have prompted Mr Della rapidly to provide the requested financial information to Mr Currie. After all, his principal excuse for not providing the information had been the imminence of the sale to the Malaysian purchasers. If that sale proposal really existed it now looked as though it may not be proceeding at all.

53 On 9 January 2009 Mr Currie sent Mr Della another e-mail expressing concern that the Malaysian proposal did not look like it was proceeding and again requested the company records for Dellmain.

54 Mr Currie e-mailed Mr Della again on 11 January 2009 complaining of being informed about "some inconsistencies in the progress of the Malaysian party" and he again requested that Mr Della "confirm when I can pick the company records/history from you so as to get them to my accountant". After this email a responsible director in Mr Della’s position could not reasonably delay any longer in providing the financial information requested. The e-mail asked a number of other questions about the affairs of Dellmain. It did not receive a response.

55 On 19 January 2009 Mr Currie again requested access to Dellmain's records but received no response. The same day Mr Currie had a telephone conversation with Mr Della about a debt discovered to be owing by Dellmain to a Mr Devine. In this conversation Mr Currie expressed his concerns about the solvency of Dellmain:

He said: ‘That has nothing to do with you. It is my debt and I will pay it.’

I said: ‘Well it does have something to do with me. I am a director of the company. What is going on? I also understand that CTG is owed money. I understand CTG is in fact owed $28,000.’

He said: ‘Yes they are owed that money.’

I said: ‘How are we going to pay that?’

He gave no response.

I said: ‘This needs to be sorted out Alain. Would the R & Defendant cover it?’

He said: ‘Max, we will only get the R & D money once we have lodged tax returns and we are actually involved in construction of the new plant at the abattoir.’

I said: ‘Well we can’t expect any of that money coming in any time soon.’

He said: ‘No’.”

56 This conversation created an even greater sense of urgency in Mr Currie to understand Dellmain’s financial affairs. A responsible director in Mr Currie’s position would have acted as he did.

57 In response to a note from Mr Della of 29 January 2009, Mr Currie once more e-mailed Mr Della complaining that he had asked both Mr Della and his lawyers to provide him with the accounts of the company and that he had still not received an adequate response. In this statement of the position he was correct. His e-mail of 2 February went on to say:

"I have asked you and your lawyers to provide me with the accounts of the company.

I have had three responses namely.

1. The documents are with the accountant (Not True)

2. The documents have already been produced (not true or if it is true then the documents which have been produced are completely insufficient to demonstrate the company’s ability to pay its debts)

3. I should not need the documents because I am about to have my shareholding purchased by some “White Knight” from Malaysia.

We have only met once since I have become a director.

That meeting was turned into an exercise in your attempting to spin the possibility of a sale of shares. Every time I have asked for documents in relation to the company I have been ignored or fobbed off.

Alain I feel we have a serious problem and I think we need to address it!

I want to arrange a meeting with you in the next couple of days to look at putting the company into voluntary administration unless you can come up with a cheque to pay the outstanding debt.

Even if you can come up with that cheque we need to meet to go through what documentation needs to be put together. Again I ask that that meeting be in the presence of my accountant.

Come back to me in the next few days. I know you are asserting that it is my fault that the wind up proceedings are before the Court but it was only by commencing those proceedings that you finally agreed to register my company’s shareholding and allow me to go on as a director of the company. If I had not commenced those proceedings I might still be a voice crying in the wilderness.

Let’s get this company into some sort of order.”

58 Mr Currie’s raising of the idea in late January that Dellmain could be put into voluntary administration should have made clear to Mr Della that if he did not soon respond to the reasonable requests being made of him, his co-director was serious about placing the company in external administration. It should also have been clear to him that unless there was more co-operation in Dellmain’s administration, then Mr Currie would be likely to take further steps through these proceedings to achieve that end.

59 There was no response to this request. On 5 February 2009 Mr Currie sent a follow-up e-mail to Mr Della seeking the documents that had been requested in the 2 February email. Mr Della’s continuing failure to respond at this time after so many request for information was wholly unreasonable and made it necessary for Jankar to press these proceedings towards a final hearing.

60 As at 5 February 2009 Mr Currie was of the view that Dellmain did not have the financial capacity to make the payment to Mr Devine and could not pay its debts. He also deposed in his affidavit of 5 February 2009 to holding the opinion:

"... no accounts have been completed for the company for the last three years and, because of the absence of financial records outlined above there is no way of knowing the company's present financial position.”

61 This was a reasonable conclusion for Mr Currie to draw from the limited material that had been provided to him, from the excuses that he was receiving and from the difficulties that he was experiencing in getting information about the company's financial affairs. In the same affidavit Mr Currie deposed to concluding from this history that:

"I have not been able to engage Mr Della in any meaningful business activity and in Dellmain, and he has consistently been unavailable to directors meetings ... and he has also failed to provide me with information concerning the company.”

62 This was a correct assessment of the state of relations between Mr Currie and Mr Della.

63 Greater determination was now added to Mr Currie’s quest to understand Dellmain’s affairs because it was evident to him by February 2009 that Dellmain was not trading and therefore was not generating any income from which its debts could be paid. Mr Currie also had serious and justified concerns by this time about how Dellmain had treated its creditors over the previous two years and about its recent history of being pursued for outstanding debts.

64 On 11 February 2009 Creagh and Creagh wrote to Colin Biggers and Paisley which letter offered no additional information about Dellmain and indicated that the proposed purchase of shares by the Malaysian interest “is still to proceed”. Despite the multiple requests for information which had accumulated from Mr Currie and his solicitors, this letter responded in a glib and unsatisfactory manner to confirm that the Malaysian transaction “remains your client’s method of resolution”. This was not a reasonable response on behalf of Mr Della.

65 Colin Biggers and Paisley wrote back on 12 February 2009 rightly pointing out that there was nothing in Creagh and Creagh’s letter that answered any of the “serious allegations” made against Mr Della and that the mention of the Malaysian purchasers was “smoke and mirrors”.

66 On 13 February 2009 Mr Currie again wrote to Mr Della. This time he raised issues about the problem that Foctel may own shares in Dellmain pursuant to Foctel's share sale agreement. As might be expected of a responsible director, Mr Currie showed concern in this e-mail that the company apparently also owed substantial sums of money to Capital Technic Consulting. The letter then finished in a colloquial, colourful but nevertheless appropriate way in the circumstances,

"Alain, please do not come back to me with some waffle about breach of fiduciary duties. If the company has debts that it can't pay then we have got to deal with it. I would rather deal with it between us man-to-man as directors however if we can't get there then I will ask my lawyers to have the court rule on this mess! Please come back to me stop."

67 Mr Della was unwilling to deal with the issue raised by Mr Currie either in the direct way proposed by Mr Currie or any other way, such as through his lawyers. Mr Della did not "come back” to Mr Currie in response to this e-mail. His conduct had by now taken on the unmistakable character of stonewalling and obfuscation.

68 After Mr Currie became a director a second meeting took place between Mr Della and Mr Currie on 13 February 2009. The meeting descended into a farce. Mr Della sought to close the meeting before any of Dellmain’s business was discussed. The only issue on which Mr Della offered to engage with Mr Currie was the potential purchase of Jankar’s shares by Malaysian interests. The conversation that took place on this issue is instructive.

Della said: ‘I am recording this meeting.’

I said: ‘Fine provided you give me a copy of the tape.’

Della said: ‘As the chairman and secretary of the company the meeting is closed on the basis that legal proceedings are taking place.’

I said: ‘On what basis do you consider yourself chairman of this meeting?’

Della said: ‘I have always been chairman.’

I said: ‘You have 50% shareholding of the company.’

Della said: ‘I am the chairman.’

I said: ‘On what basis do you say as the secretary you have a right to say what happens?’

Della said: ‘If you want to talk about other issues in relation to the company and the potential purchase of our company shares by the Malaysian interest meet downstairs.’

I said: ‘The Malaysians have not been mentioned for three weeks.’

Della said: ‘They are still there provided you do not take further action against the company.’

Della left the building.”

69 A conversation to this effect took place on this occasion. It shows that, whether or not they actually existed beyond the single show of interest by Ms Ampalam, that the concept of Malaysian purchasers was being deployed as a device by Mr Della to deflect Mr Currie from making inquiries about the affairs of Dellmain in discharge of his duties as a director. There was no discussion at this meeting about Dellmain’s business affairs. Mr Currie correctly concluded from this encounter that he and Mr Della could not conduct the business of Dellmain properly.

70 Despite this plea from Mr Currie, Dellmain’s problems with creditors continued to escalate. On 17 February 2009 Mr Peter Harkin of Colin Biggers and Paisley wrote to Creagh and Creagh stating,

“I have been contacted by John Mannix who asserts he is suing Dellmain in relation to unpaid director’s fees. Would you please indicate whether or not these proceedings are on foot?"

71 It is evident from the content of this letter that prior to its being written that there had been no communication between Mr Della and Mr Currie about the existence of this creditor. Mr Della’s unreasonable conduct continued. There was no reply to this letter.

72 On 20 February 2009 Creagh and Creagh forwarded to Colin Biggers and Paisley a copy of a Statement of Claim issued by John Joseph Mannix on 14 August 2008 out of the District Court of New South Wales against Dellmain claiming $85,102.77 on account of unpaid directors fees alleged to be accrued but unpaid for the period 5 September 2003 to 30 June 2006 together with a Defence. Mr Currie explained in paragraph 26 of his affidavit of 24 February 2009 that Mr Della never mentioned to him the existence of these District Court proceedings nor anything about the claim by Mr Mannix. The amount alleged to be due under this Statement of Claim remained unpaid up to the date of hearing of these proceedings. Mr Mannix appeared before the court on 3 June 2009 and explained that his action against Dellmain was listed for hearing the following day on 4 June 2009. When Mr Mannix was asked at the hearing what his attitude was in relation to the application brought by Jankar and the consequence that a winding up order would stay in his action in the district Court he said, "your Honour, whilst I have no standing in this matter, I do support the application."

73 On 5 March 2009 Mr Paul Devine served a creditor’s statutory demand on Dellmain for the payment of a debt of $39,159.38 under section 459E(2)(e) of the Corporations Act 2001. On the same day, Mr Clarence Devine served another creditor’s statutory demand for the payment of a debt of $45,626.45 on Dellmain. Both these statutory demands claimed debts owing under a Deed of Settlement and Release dated to August 2007 between the Paul and Roy Devine of the one part and Mr Della and Dellmain of the other part. As a party to this deed, Mr Della must have been aware that Dellmain had these obligations. Dellmain did not pay either of these debts. There is no evidence of the directors meeting to deal with these obligations or arranging for their payment.

74 Between March 2009 and the hearing on 3 June 2009 on the available evidence nothing was done by Dellmain to satisfy the claims of creditors, nor by Mr Della to co-operate in holding directors meetings, nor by Mr Della to put Mr Currie in possession of the accounts and financial statements of the company. No explanation was provided to the Court for this continued conduct on Mr Della’s part. I conclude that it was conduct in furtherance of a policy adopted by Mr Della of studied non co-operation with his fellow director Mr Currie. It had the not unexpected result of placing Dellmain in a state of managerial paralysis.

75 No accounts for Dellmain have been produced for the last three financial years. Little if any reliance can be placed on the draft accounts prepared for the period ending 30 November 2007.

76 Upon this history Jankar sought the winding up of the company. In paragraph 31 of his affidavit of 24 February Mr Currie expressed the opinion that Dellmain was insolvent. He also expressed the opinion that I accept that he could not ascertain whether Dellmain had the cash capacity to pay the unpaid obligations to Devine. On the morning of the hearing Mr Johnson, counsel for Nature Meat and Mr Della, indicated to the court that he did not have instructions to oppose the relief sought.

77 The Court now gives reasons for the winding up order made on 3 June 2009. It is then necessary to determine Jankar's applications for costs. As a preliminary matter though I should identify the Court’s approach to the assessment of Jankar’s unanswered affidavit evidence.

Jankar’s Unanswered Affidavit Evidence

78 Jankar has filed extensive affidavit evidence which has not been the subject either of cross-examination or evidence in reply. Where factual evidence is not cross-examined upon, and where there is no creditable body of evidence of a substantial character in direct contradiction of the non cross-examined evidence, the applicable principle is that prima facie, it should be accepted: Ali v Nationwide News Pty Limited [2008] NSWSC 183 [111], [112]; HSH Hotels (Australia) Limited v Multiplex Constructions Pty Limited [2004] NSWCA 302 [86], [87].

79 Apart perhaps from the contents of conversations deposed to by Mr Currie it would be difficult for Nature Meat and Mr Della to dispute the plaintiff’s evidence. Much of it was objectively verifiable. It chiefly consisted of correspondence and emails passing between representatives of Jankar and Nature Meat and Mr Della. Part of Jankar’s case depends upon a claimed lack of documents, books and financial records maintained by Dellmain when it was controlled by Nature Meat and Mr Della. It also depends on an absence of directors meetings after Mr Currie became a director. If such documents existed or if there were a record of such directors meetings then they would be available to Nature Meat and Mr Della to tender to displace the prima facie inferences that arise from the plaintiff’s evidence. That neither Nature Meat nor Mr Della have chosen to put no such material forward in answer to Jankar’s case strengthens the inference that the material does not exist.

80 Nor can it be said that here is anything in the plaintiff’s evidence as to the course of events between May 2007 and the date of trial that was inherently improbable. Far from it, the account above shows that over these two years Mr Della engaged in a coherent pattern of stalling and calculated non co-operation with Mr Currie. There is nothing that Mr Johnson can point to that does not fit this pattern. Mr Johnson’s submissions took only minor issue with the overall factual account for which Jankar contends. On the evidentiary material before me he had no basis to dispute that account. His submissions on behalf of Mr Della made the best of the material available to him.

The Winding Up

Reasons for the Grant of Relief on the Just and Equitable Ground

81 Jankar applies to wind up Dellmain under s 461(1)(e), (f) and (k) of the Corporations Act 2001. The Court made winding up orders against Dellmain under s 461(1)(k).

82 My reasons for making a winding up order under s 461(1)(k) Corporations Act 2001 may be shortly stated. The justification for a winding up on the “just and equitable” ground in circumstances of deadlock or loss of mutual trust and confidence is well established: Ebrahimi v Westbourne Galleries Limited (1973 )AC 360, Johnny Ocean’s Restaurant v Page (2003) NSWSC 952, Booker v You Run the Business (2008) FCA 1672.

83 The winding up of Dellmain on the just and equitable ground is justified because:

(a) there is a deadlock or inability to function in the management of Dellmain and

84 The deadlock in the management of Dellmain is well demonstrated. Features of that deadlock are a lack of any satisfactory directors’ meetings since Mr Currie became a director, the constant refusal of Mr Della to hold directors meetings where the affairs of the company could be discussed, the inability of the directors to provide to one another documents about the affairs of Dellmain in a co-operative way, the conduct of correspondence on behalf of the directors, one to the other, through lawyers making assertion and counter assertion about the affairs of Dellmain without any advance in the business management of the company and finally the inability of the directors to address the issue of whether or not Dellmain was insolvent. From the time that Mr Currie became a director through until the time that these proceedings were heard there was no co-operation or measurable progress on any important issue facing Dellmain.

85 Jankar’s initial investment in Dellmain was based on the trust and confidence Mr Currie reposed in Mr Della. Mr Currie trusted Mr Della to apply the investment that Jankar had made for the benefit of Dellmain. Mr Currie expected, as his correspondence shows, that Dellmain’s affairs would be conducted with mutual confidence between himself and Mr Della. The correspondence and other dealings between them are alive with Mr Currie’s growing disillusionment that his initial confidence in Mr Della was dissolving. Mr Currie’s trust and confidence in Mr Della broke down by a series of progressive steps

(a) Between September 2007 and December 2008 Jankar was denied the shareholding to which it was contractually entitled. Although Mr Della’s correspondence said the denial was justified because he believed that Jankar was prepared to wait until the possible Malaysian purchase was resolved, the facts do not support a finding that Mr Della believed this.

(b) From December 2008, the refusal of Mr Della to permit Mr Currie to take part in the affairs of Dellmain at properly convened directors meetings thereby excluding him from the company’s management caused a loss of confidence in him on Mr Currie’s part.

(c) The continuous refusal of Mr Della to allow Mr Currie to have access to the books and records of the company engendered an additional loss of confidence in Mr Della.
(d) Mr Della remained in practical control of the affairs of Dellmain and refused to relinquish control or to recognise that Mr Currie had any say over the stewardship of his $1,000,000 investment in Dellmain, thereby further undermining Mr Currie’s confidence in him.

86 I also reserved the question of whether there were grounds for winding up the company under s 461(1)(f) and (k). Those paragraphs provide:

“General grounds on which company may be wound up by Court

....

(e) directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or

(f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or

....

87 A winding up order has already been made under s 461(1)(k). However, the question of whether a winding up order might also be justified under s 461(1)(e) and (f) is not a theoretical matter. It has relevance to the question of what costs orders, if any should be made against persons other than Dellmain itself. On these questions of costs, as will be seen below, Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin [1997] HCA 6; (1997) 143 ALR 1; (1997) 186 CLR 622 describes the Court’s task as ascertaining whether Mr Della acted so unreasonably in causing Dellmain to defend these proceedings, that Jankar should have the costs of the action. The court’s inquiry on costs may extend to assessing whether one party was almost certain to have succeeded if the matter had been fully tried. It is in this context that I now consider whether a winding up would have been justified on any other basis.

Winding Up for Oppression

88 A winding up under s 461(1)(f) would have been justified on the basis that Mr Della conducted the affairs of Dellmain in a manner which was oppressive or unfairly prejudicial to or unfairly discriminatory against Jankar and in a manner that was contrary to the interests of Dellmain as a whole.

89 It is unnecessary to state the general principles upon which a winding up order will be made under s 461(1)(f). It is more useful to give some examples of instances where the remedy has been granted which have elements in common with Mr Della’s conduct in this case.

90 First, exclusion of a member from management may attract s 461(1)(f) relief where it is not in accordance with the company’s constitution or is inconsistent with a common understanding between members which gave rise to a member’s legitimate expectation of participating in management: Quinlan v Essex Hinge Co Limited [1996] 2 BCLC 417. After he became a director, as his correspondence shows and by reason of the size of his investment, Mr Currie had a legitimate expectation of being involved in the management of Dellmain through the holding of directors’ meetings. Mr Della denied Mr Currie any involvement in such meetings for six months.

91 Second, even though alternative remedies may be available, denial of access to information, books and records may be held to constitute oppressive conduct: Re Back 2 Bay 6 Pty Limited (1994) 12 ACSR 614. Mr Della denied information to Jankar in a way that jeopardised the value of Jankar’s shareholding interests in Dellmain, because of the uncontrolled risk of insolvency because such information was not available to directors.

92 Third, the manner in which board meetings are conducted or are not held may amount to oppressive conduct: Shum Yip Properties Development Limited v Chatswood Investment & Development Co Pty Limited (2002) 40 ACSR 619 at 659. Here there is ample evidence of Mr Della’s refusal to meet with his fellow director and refusal to hold genuine discussions about Dellmain’s affairs when they were together.

93 Fourth, misstatements and omissions by directors in breach of their fiduciary duty that unfairly prejudice minority shareholders may also amount to oppressive conduct. There has been misleading conduct here by Mr Della, for example, his non disclosure of Dellmain’s obligations to Mr Mannix and Foctel and Mr Strauss.

94 Fifth, unlawful conduct is not a necessary precondition to the Court’s intervention though it may more readily justify such an intervention: Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489. Here, as I have found, it is to be inferred that there was a contravention of s286 Corporations Act 2001.

95 In all these circumstances it is almost certain that a winding up order would have been made under s 461(1)(f) if this matter were to have been fully contested on that ground.

Winding Up for Acting in Self Interest

96 Jankar also contends that Mr Della has acted in the affairs of Dellmain in his own interests rather than in the interests of members as a whole and that he acted in a way that is unfair or unjust to Jankar, so as to justify winding up under s 461(1)(e) of the Corporations Act 2001.

97 It is likely that had the winding up of Dellmain been fully contested on s 461(1)(e) grounds that Jankar would have been almost certain to have succeeded in having a winding up order made. There is little to displace the inference that Mr Della was acting in the affairs of Dellmain in his own interests rather than in the interests of members as a whole. He acted in a manner that was unjust or unfair to other members such as Jankar.

98 In the absence of any evidence having been filed by the defendants, there are perhaps two main competing explanations for Mr Della's unco-operative behaviour towards Mr Currie and Jankar's interests, especially from about October 2008 up to the date of the trial. One is that Mr Della was busy and distracted by broader business interests and as a result neglected the affairs of Dellmain. His neglect allowed Dellmain's financial affairs to fall into disarray. The parlous state of Dellmain's accounting records, the failure to respond to the many reasonable requests for information from his fellow directors may be consistent with this explanation. I considered that this explanation might be an answer to Jankar’s submission that a winding up under s 461 (1) (e) was justified.

99 The competing explanation contended for by Jankar is that Mr Currie’s conduct was calculated to allow him to act in his own interests in the affairs of Dellmain rather than in the interest of all members including Jankar. This second explanation is compelling and it fits the facts well.

(a) Mr Della’s misleading conduct goes beyond mere distracted incompetence and is more consistent with planned action of some kind.
(b) If Dellmain’s poor financial record keeping and lack of compliance with its statutory obligations were to be explained by incompetence alone, it is difficult to understand why Mr Della,

(i) did not simply mend his ways and seek Mr Currie’s offered assistance to put Dellmain’s house in order,

(ii) gave contradictory explanations as to the whereabouts of financial documents,

(iii) stonewalled in providing information for so long, except in the provision of limited matters,

(iv) failed to take any step to set Dellmain on the right path even between February and June this year,

(v) if he was not going to co-operate with Mr Currie and Jankar’s attempts in the near term, he did not recognise that the best course for members was that he should agree to an administrator or liquidator being appointed to Dellmain by about the time that proceedings were commenced,

(vi) did not immediately after 27 November 2008 and before the commencement of the proceedings give Dellmain’s accountant instructions to issue 50% of Dellmain’s share capital to Jankar, and
(vii) kept refusing to hold proper directors’ meetings and when he did agree to meet Mr Currie conducted himself such that no sensible business was conducted at them.

100 It is difficult to explain any of this behaviour except on the basis that Mr Della wished to retain the advantage of full personal control of Dellmain without the inconvenience of having fully to account to Jankar for the application of its investment in the company.

101 Accordingly, I find that were this matter to have proceeded to a fully contested hearing on this ground it is almost certain that Jankar would have succeeded in obtaining a winding up order under s 461 (1) (e) Corporations Act 2001.

Jankar’s Costs Application

102 Jankar sought three costs orders. Jankar contends for orders:

(a) that its costs should be paid by Mr Della and not by Dellmain,

(b) that those costs should be paid on the indemnity basis;

(c) that Mr Della should pay Dellmain’s costs of the proceedings.

103 Drawing upon the general costs discretion given to the Court by s 98 of the Uniform Civil Procedure Act 2005 and s 1335(2) Corporations Act 2001, Jankar submitted that Mr Della acted unreasonably in causing Dellmain to defend this litigation in circumstances where it was clear that Dellmain’s affairs were being conducted in a way which considered objectively by a commercial bystander was unfair: Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692. Jankar further submits that if a winding up order had not been consented to that an order would nevertheless have been made, not merely on the just and equitable ground but also under s 461(1)(e) and (f). Jankar says that the appropriate order in the circumstances is that Mr Della pay Jankar’s costs, rather than, as would otherwise be mandated by s 466 (1) and (2) of the Corporations Act 2001, that an applicant for appointment of a liquidator look to its taxed costs out of the property of the company: s 466(2).

104 Jankar’s second contention was that any costs paid by Mr Della to Jankar ought be assessed on the indemnity basis because:

(a) Mr Della’s conduct has been plainly unreasonable and pursued for an ulterior or collateral purpose or undertaken in an unmeritorious deliberate or high handed way and is certainly unreasonable: see the comments of Kirby J in Ruhani v Director of Police [2005] HCA 42; (2005) 222 CLR 489 at [243], and

Re Fountain Selected Meats

105 Thirdly, Jankar submits that Mr Della should pay Dellmain’s defence costs of these proceedings on the basis that they are essentially a dispute between Jankar and Mr Della. Jankar submits that Mr Della has at all times been in effective control of Dellmain and has used Dellmain for his own purposes while on the other hand preventing the plaintiff from obtaining any benefit from or having any involvement in Dellmain. Jankar contends in these circumstances it would be most unjust if Dellmain’s assets were to be reduced by the payment of legal costs in these proceedings. That unfairness, Jankar submits would impact not only on Jankar itself but Dellmain’s creditors, since the assets available for distribution among them would be reduced by the costs appropriated from Dellmain’s assets by Mr Della, and caused by breaches of duties which he owed not only to Dellmain but because of its financial position also to creditors themselves: Kinsella v Russell Kinsella Pty Limited (1986) 10 ACLR 395 at 401-405.

106 In support of its submissions Jankar invokes ss 232 and 233 Corporations Act 2001 as an analogous a source of power for the Court ordering a director to indemnify the company in respect of any costs it has occurred in circumstances where the facts stipulated in s 461(1)(e) or (f) of the Corporations Act 2001 are established. Section 232 empowers the Court to make an order under s 233 if the conduct of the company’s affairs or an actual or proposed act or omission by or on behalf of a company is contrary to the interest of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity. The powers under s 233(1)(j) include the making of orders “requiring a person to do a specified act”. Ordering the provision of an indemnity to the company for defence costs falls within those words, as is demonstrated for example by White J’s decision in Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2005] NSWSC 495; (2005) 54 ACSR 249.

107 Mr Della’s submissions concede that there ought be an order for costs on the ordinary basis against him in respect of the interlocutory process which was active between 4 and 15 December 2008. Mr Della submits that there ought not be any other order for costs against him and that Mr Della should not be required to indemnify Dellmain in respect of costs of the proceedings. In support of these general propositions Mr Della put a number of specific contentions. I deal with these specific contentions in the order in which they were raised. I will then determine each of the three parts of Jankar’s costs submissions.

A Hypothetical Action

108 First, Mr Della submits that where there has been no hearing on the merits the Court ought not to try a hypothetical action between the parties solely for the purposes of determining an issue as to costs. It is conceded on behalf of Mr Della that the Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain costs orders in the proceedings in accordance with the principles stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin at 642-5.

109 The Court is not trying a “hypothetical action” between the parties. Rather, the Court is determining whether one or other of the parties has acted so unreasonably that the other party should obtain costs orders. This is precisely the task that was said by McHugh J to be permissible in Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin. Mc Hugh J’s statement in that case that the “Court cannot try a hypothetical action” is explained by what he next said:

“To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided.”

110 The “hypothetical action” to which McHugh J was referring was embarking upon a full trial of the issues with cross-examination on all sides as if there had not been a settlement. His Honour’s point was that for the Court to allow that course would negate the costs savings that the parties had secured through their settlement. The Court did not permit such a trial of a “hypothetical action” here. With the active and efficient co-operation of counsel on both sides, most of the available evidentiary material was put before the Court in this case so that the Court could make the assessment of the reasonable or unreasonable actions of the parties which is called for by Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin. The assessment of whether the parties have acted reasonably may be supplemented by a finding as to whether one or other of them might have succeeded in the action. Even that would still not be a trial of a “hypothetical action”. Mr Della’s first point fails.

Section 233 Corporations Act 2001 Relief

111 Second, Mr Della submitted that no relief was sought by the plaintiff under ss 232 or 233 of the Corporations Act 2001 and so the particular costs orders claimed by Jankar grounded on those sections, cannot be made.

112 Jankar’s summons does not contain any prayer for relief under s 233 of the Corporations Act 2001. Jankar’s principal closing submissions appeared as though it might be based upon that provision. No application for amendment of the Further Amended Originating Process was made expressly to claim relief under s 233 Corporations Act 2001. The mere reference to s 233 in closing submissions is not sufficient to enable the Court to grant relief on that basis.

113 The language of Jankar’s closing submissions anticipates the absence of a claim for relief under s233 Corporations Act 2001. Jankar submitted:

Corporations Act

Cassegrain & Anor v CTK Engineering Pty Limited & Anor

114 In reply Mr Della pointed to the absence of any claim for relief under s 233. This was a matter of some procedural importance. Authorities in the area such as Cassegrain at [90]-[100] ground the making of such indemnity orders at least in part in s 233(1)(j). Given that Jankar’s submissions appeared perhaps to assume that relief under s 233 was available and given that the state of the pleadings was not dealt with in Jankar’s written submissions I called for supplementary submissions as to whether such an indemnity order was available either under s 233 or s 1335(2) CorporationsAct 2001. The results of those supplementary submissions was a concession by Jankar that s 233 was only being invoked by analogy and that the claimed indemnity to Dellmain for its defence costs was grounded on s 1335(2) Corporations Act 2001.

Contravention of Section 286 Corporations Act 2001

115 Third, Mr Della takes issue with Jankar’s case that there has been contravention of s 286 Corporations Act 2001 due to the state of the financial records of Dellmain. Mr Della submits that it has not been shown that there had ever been an obligation to prepare a financial report and a directors report in relation to the first defendant as would be required by ss 292(2), 293, and 294 of the Corporations Act 2001. Mr Della further submits that documents were produced 8 December 2008 pursuant to an order for production when the proceedings were originally commenced. Those documents are not in evidence and Mr Della submits that there is insufficient evidence to satisfy the Court that there has been a contravention of s 286.

116 Some precision is necessary when analysing what documents have been produced in these proceedings. Two groups of documents have been produced by or on behalf of Mr Della to Jankar. The first group is the financial material provided by Creagh and Creagh under cover of their letter of 10 December 2009 and exhibited to Mr Currie’s affidavit of 5 February 2009. This material was produced in response to a letter of request from Colin Biggers and Paisley of 9 December 2009. The contents of those documents were fully analysed by Mr Currie in paragraph 11 of his affidavit of 5 February 2009. The main features of that analysis are set out above under the heading Background, above. That analysis and Colin Biggers and Paisley’s request show that Jankar was not provided with any financial accounts of Dellmain for the two then complete financial years ending 30 June 2007 and 30 June 2008. Nor did Jankar have nor was it provided with any of Dellmain’s management accounts for any period after 1 May 2007. These were important documents to enable the directors of Dellmain to understand the financial position of Dellmain in late 2008 and early 2009, when Mr Currie was beginning to suspect that Dellmain was probably insolvent.

117 A description of the documents that were produced has been given by Mr Currie which has not been objected to and is in evidence. Although this description, is only secondary evidence of the documents, it is a description upon which the Court can act. It does enable a clear picture to be obtained of what was and what was not included among them. It is clear from this description that the documents produced did not contain any recent financial statements for Dellmain.

118 The second group of documents were produced to Court in the course of the interlocutory proceedings on 8 December 2009 in response to an Order for Production made when the proceedings were commenced. It is correct, as Mr Della submits, that these documents are not in evidence. Nor is any analysis of them offered in Jankar’s evidence. However, the fact that they are not in evidence does not limit the Court’s capacity to draw inferences about what they do not contain, when the full circumstances are considered.

119 The Court can infer with greater confidence that recent financial statements for Dellmain were not created at any time in the course of Dellmain’s operations, because they have not been produced and tendered on behalf of any of the defendants. The veritable stream of correspondence from Mr Currie asking for these documents both before and after these proceedings were commenced, the issue of the Order for Production itself and the allegations in the proceedings (in paragraphs 18A and 18B of the Further Amended Statement of Claim) of specific failures to keep financial records, all placed Mr Della on notice that if such documents existed, he should produce them. Despite the prominence of this issue and despite Mr Della’s subsisting responsibilities as a director to cause such records to be kept, these financial records have not been produced by the defendant among the first group of documents or tendered by Mr Della out of the second group. On the basis of this evidence of non production of these documents after repeated demands the Court may infer that they do not exist. The missing financial statements wholly relate to a period when Dellmain was controlled by Mr Della alone. He is the best person to explain their absence. He has chosen not to do so.

120 There is prima facie evidence of a contravention of s 268 Corporations Act 2001. It is not necessary though for Jankar to establish such a contravention in order for a winding up order to be made under s 461(1)(e), (f), or (k) Corporations Act 2001. I find on the evidence that Dellmain has no financial statements in existence for the financial years ending 30 June 2007 and 30 June 2008 and no management accounts for any period after 1 May 2007. This underlying fact is relevant to the grant of relief under s 461(1)(e), (f), or (k) Corporations Act 2001 in the various ways described under the heading Reasons for the Grant of Relief on the Just and Equitable Ground.

121 In answer to Jankar’s claim of a s 286 contravention, Mr Della submits that Jankar has not shown that Dellmain was obliged to prepare an annual financial report and a director’s report for the 2007 and 2008 financial years by reason of the operation of ss 292(2), 293 and 294 Corporations Act 2001. This does not engage the thrust of Jankar’s case that Dellmain’s 2007 and 2008 financial statements and post May 2007 management accounts were never created, a fact that tends to show a company in serious internal disarray. If Dellmain’s records were in a sufficiently satisfactory state for it to be shown that no s 293 shareholder direction and no s 294 ASIC direction had been made in respect of the Dellmain for either of those two financial years, then it could be expected that those records could have been put before the Court by the defendants, either in support of this submission or to answer the fundamental inference of mismanagement that arises from their non production. Moreover, the submission is disconnected with the real facts of this case. It is ambitious of Mr Della to complain of the absence of a s 293 shareholders direction requiring preparation of the relevant financial statements and directors reports. One of Jankar’s fundamental allegations in the proceedings, which I have found to be made out, is that Mr Della and Nature Meat had failed to issue shares in Dellmain to Jankar from May 2007, thereby denying Jankar the capacity to requisition a s 293 direction as members.

Other Legal Remedies Available to Mr Currie

122 Fourth, Mr Della submits that Mr Currie was entitled to exercise all the powers of a director to obtain access to records after he became a director and following the orders made on 8 December 2008, such as the powers conferred upon him under ss 198F and 247F Corporations Act 2001. Mr Della submits that no relief was sought by Mr Currie under the powers provided for under the Corporations Act 2001 in default of him being satisfied he was gaining access to appropriate financial records.

123 The difficulty with this argument has been identified in Jankar’s submissions in reply. It is a remarkable submission. Mr Della contends that one director is entitled to say to a second director that if the latter wants access to the parties’ records then the second director should bring proceedings for relief under ss 198F and 247F Corporations Act 2001 to obtain them. Sensible corporate life could not proceed if company affairs were run this way. Morever, much of Mr Currie’s conduct should be analysed as a genuine attempt to deploy his s 198F rights, the exercise of which was being obstructed by Mr Della.

No Obligation to Issue Shares in Dellmain

124 Fifth, Mr Della submits that he was under the mistaken impression that Jankar and Mr Currie were content to defer the actual issue of shares in Dellmain and to defer the notification of ASIC about the issue of shares, until after the shareholders agreement had been finalised. Mr Della refers to the letter from Creagh and Creagh to Colin Biggers and Paisley of 27 November 2008 which makes this assertion. Mr Della submits that the proceedings were commenced on 3 December 2008 immediately following the conference convened for the purposes of discussing relevant matters including the appointment of a provisional liquidator, at which conference this wrong impression was set right.

125 The first problem with this argument is that it must have been obvious to Mr Della that Mr Currie wanted the shares issued to him before any shareholders agreement was signed. That is what the agreements between the parties provided for and what Mr Currie’s correspondence by the second half of 2008 was saying. There was no reason for Mr Della not to accept this at face value.

126 The original Direction and Authority signed in May 2007 between Mr Della and Mr Currie contemplated the issue of an undetermined number of shares when a Shareholders Agreement was signed. The arrangements between them became more concrete by September of the same year. Creagh and Creagh’s email of 25 September 2007 records an agreement to “arrange to transfer/issue shares representing 50% of Dellmain’s issued capital”. This promise was only conditional on Mr Currie increasing his investment to $1,000,000 which he did. It was not qualified by any other future event, such as the execution of a Shareholders Agreement.

127 Mr Della’s “mistaken impression” first asserted in Creagh and Creagh’s letter of 27 November 2008, that Mr Currie “was content for [the issue of shares] to occur once the Shareholder Agreement had been finalised” is negatived by the agreement made on 25 September 2007. There is nothing in Mr Currie’s affidavit evidence that lends support to the idea that Mr Della had any basis for holding such a mistaken impression. In his own email of 3 October 2007 Mr Della concedes Jankar’s entitlement to 50% of the share capital of Dellmain once the balance of $700,000 was paid. It is difficult to explain Mr Della’s acquiescence in Mr Currie’s requests for information thereafter other than on the basis that Mr Della understood Mr Currie was making those requests on the basis of an expectation that shares representing 50% of Dellmain’s would soon be issued to him. Mr Della’s asserted negotiations with Malaysian purchasers of Jankar’s shares are also barely compatible with this “mistaken impression”.

128 The real explanation for Mr Della’s so called “mistaken impression” is to be gained from Mr Della’s email of 12 February 2009 in which he says to Mr Currie:

“3. It is because you did not sign the shareholders agreement that you were not on the register not because of court orders. This has been said to you many times. If you did not agree with the agreement, (and you amended it as well) all you had to do is say so and not pay anything. The matter would not have proceeded So what was your game?”

129 Mr Della was unwilling to issue the shares until Mr Currie signed the version of the Shareholders Agreement that he, Mr Della, wanted Mr Currie to sign. However, Mr Della had no basis for a belief at any time after 25 September 2007 that Mr Currie was of the same view about his entitlements to the issue of shares in Dellmain.

Indemnity Costs

130 Sixth, Mr Della contends that if an order for costs is made against him that it should not be made on the indemnity basis. This submission is dealt with below when Jankar’s claim for indemnity costs is determined.

Costs Against Mr Della

131 The Third Defendant accepts that there ought be a costs order against him on the usual basis in respect of the Interlocutory Process. This concession would cover most of the costs incurred by Jankar between the commencement of the proceedings on 4 December 2008 and the dismissal of the balance of the Interlocutory Process on 15 December 2008. Jankar seeks a wider order for costs against Mr Della in respect of the remainder of the proceedings. The exercise of the Court’s discretion to make such an order when the defendants have consented to a grant of final relief or have otherwise agreed on the outcome of the proceedings is informed by principles stated in two leading cases. The first is a statement by Hill J in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 at 530:

“(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order …

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them

(4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation …

132 The second is the statement by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Li Qin CLR 622 at 624-5 ; ALR 1 at 3:

”In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

…

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.

…

133 Based on Li Qin’s case, Jankar submits that it is entitled to costs against Mr Della both because it alleges Mr Della has acted unreasonably and because if a winding up order had not been consented to under s 461(1)(k) that it would nevertheless have been made under s 461(1)(e) and (f).

134 I have already found under the heading Background that Mr Della’s conduct was unreasonable at every stage when Jankar was incurring legal costs in these proceedings. I have also found that Mr Della’s unreasonable conduct led Jankar to commence these proceedings. I have found also that Jankar would have succeeded in winding up Dellmain under s 461(1)(f) for oppressive conduct of the company affairs. This oppressive conduct both preceded and spanned the whole of these proceedings. There is sufficient evidence also to support a conclusion that Jankar would have succeeded in winding up Dellmain under s 461(1)(e), for Mr Della acting in the affairs of the company in his own interests. My reasons for these conclusions have already been elaborated.

135 The defendant’s consent to interlocutory relief on 8 December 2008 is relevant to the Court’s present exercise of discretion. Mr Johnson concedes that Jankar is entitled to its costs of Interlocutory Process. This is a sound assessment on his part of the outcome of that phase of the proceedings. By resort to the processes of this Court Jankar was substantially successful in securing Nature Meat’s and Mr Della’s consent to interlocutory relief.

136 For all these reasons I conclude that Mr Della has acted so unreasonably that Jankar should have its costs of the action.

137 Jankar also submits that the Court should exercise its discretion and displace the statutory mandate of s 466(1) and (2) which would otherwise have Jankar’s costs paid out of the property of the company. If there are insufficient assets in Dellmain to meet the claims of its creditors then Dellmain’s creditors are advantaged if the Court orders that Jankar’s costs be paid by Mr Della rather than Dellmain itself. By making an order under s 466(2) that Jankar’s costs be paid by Mr Della, creditor’s claims on the company’s assets are reduced. The creditors will be relieved of the burden of costs that have been occasioned by Mr Della’s unreasonable conduct.

138 If there is a sufficiency of assets to meet the claims of Dellmain’s creditors, then if Dellmain is made liable to pay Jankar’s costs the burden of the costs order will fall equally on Jankar as Nature Meat’s equal shareholder. Given Mr Della’s unreasonable conduct in occasioning these proceedings that outcome would be unfair to Jankar. Upon Jankar’s application the Court will make that costs order only against Mr Della. Jankar does not make a claim for costs against either Dellmain or Nature Meat.

Indemnity Costs

139 Jankar’s seeks an order that Mr Della pay its costs on an indemnity basis. Its submissions focus on the unreasonableness of Mr Della’s conduct leading to and in the early stages of this litigation. That unreasonableness is established. It justifies an order that Mr Della pay Jankar’s costs of these proceedings. The question now to be determined is whether it also justifies an order for indemnity costs. Jankar advances several submissions for such an order:

(a) Mr Della must have known that these was no basis to refuse to issue the shares in Dellmain that he had contracted be issued for Jankar’s investment of $1,000,000 yet he deliberately refused to cause them to be issued for what must have been ulterior motives to maintain control of Dellmain;

(b) Mr Della and the other defendants have given no evidence attempting to support his refusal to issue the shares;

Corporations Act

140 Jankar submits that Mr Della’s actions were “plainly unreasonable”, “unmeritorious”, and “deliberate” and carried out for “an ulterior or collateral purpose” in the range that those words are used by Kirby J in Ruhani v Director of Police at [243].

141 Jankar submits that the Colin Biggers and Paisley letter of 26 November 2008 and the Creagh and Creagh reply of 27 November 2008 are also of particular significance to Jankar’s application for indemnity costs. Jankar submits that by 27 November 2008 even if there had been some previous misunderstanding about whether the shares in Dellmain were to be issued to Jankar, or that their issue should await finalisation of the Shareholders Agreement, the position had been clarified by 26 November 2008. The plaintiff says that Dellmain ought immediately to have issued the shares but it did not. Mr Harris SC submits that the court should infer that the plaintiff is entitled to indemnity costs at least from 27 November 2009, from when it was clear that the plaintiff was entitled to an issue of the shares but they remained unissued. Mr Harris SC submits that Jankar is also entitled the costs on the ordinary basis before that date.

142 Mr Della resists Jankar’s claim for indemnity costs by submitting:

(a) that the necessary ingredients incidental to the exercise of the discretion to make an order for costs on an indemnity basis has not been established: Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169 at 178-181 [40]-[46] per Campbell J; and

(b) that the discretion to order indemnity costs must be exercised on grounds connected with the actual litigation and that conduct in the circumstances leading up to the litigation as opposed to conduct in the litigation itself is not a relevant type of connection unless it bears upon the conduct as a litigant: Hypec Electronics Pty Limited (in liquidation) v Mead at 179 [42], 180 [45]-[47] per Campbell J; and

Latoudis v Casey

Ohn v Walton

Oshlack v Richmond River Council

143 Mr Della’s submission that the grounds for ordering indemnity costs must be connected with the actual litigation, rather than circumstances leading up to the litigation is well established in authority.

(a) Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct when established in litigation will ordinarily lead to an order for costs on the usual basis and something more must be established for a special order as to costs: Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 at [136] per Giles JA (with whom Handley and Fitzgerald JJA agreed); NMFM Property Pty Limited v Citibank (No 2) (2001) 109 FCR 77 at 92 [56] per Lindgren J; Hypec Electronics Pty Limited (in liquidation) v Mead at [43]-[46] per Campbell J.

(b) The starting point to any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party on a party party basis which will fall short of complete indemnity: In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 at 152-153.

(c) The conduct of a party that is relevant to the issue of indemnity costs is the party’s conduct as litigant but the knowledge that a party has, including knowledge of his or her past conduct may be relevant to an assessment of his or her conduct as a litigant: NMFM Property Pty Limited v Citibank (No 2) at [56] per Lindgren J.

as litigant

Baillieu Knight Frank (NSW) v Ted Manny Real Estate Pty Limited

Degman Pty Limted (in liquidation) v Wright

144 Unreasonable as I have found Mr Della’s conduct to be in the present case, it is difficult to see that it has the necessary quality of conduct as litigant that will attract an order for indemnity costs. His conduct fell well below reasonable standards of directors conduct, was oppressive and he acted in his own interests in the affairs of Dellmain. Nevertheless, it is difficult to identify specific conduct that would justify the making of an indemnity costs order conformably with established principle.

145 Jankar’s reliance upon Kirby J’s dicta in dissent in Ruhani v Director of Police does not assist its argument. Kirby J says that an order for indemnity costs will not usually be made unless “some feature of the litigation” convinces the Court that the party entitled to costs should have a special order. His Honour’s statement of the applicable test identifies conduct in the litigation as the foundation of an indemnity costs order.

146 Jankar has not demonstrated that an indemnity costs order is warranted in this case for several reasons. First, the obvious weaknesses of the defendant’s case, Mr Della’s oppressive conduct and the defendants’ failure to adduce any evidence on this application or in the proceedings generally in support of its defence, do not themselves justify an order for indemnity costs against Mr Della. The reasoning in Harrison v Schipp; Cameron v Schipp at [136] counsels firmly against any contrary conclusion.

147 Second, the question to be asked is what has Mr Della done as litigant to attract an indemnity costs order, by, for example, the propounding of frivolous, thoroughly unjustified or deliberately false defences. The defendants have not deployed particular false defences in this litigation that have lengthened the proceedings. Indeed their approach to the litigation has been regrettably passive. Apart from failing to recognise and quickly remedy the weaknesses in their case, an option that was always open to them and which may have prevented the winding up of Dellmain, they have done little. That is Jankar’s very complaint but it is not in itself grounds for an indemnity costs order.

148 Third, even Mr Della’s failure to cause 50% of the issued capital of Dellmain to be issued to Jankar as soon as Creagh and Creagh wrote their letter of 27 November 2008 to Colin Biggers and Paisley which recognised that Mr Della had been under a “mistaken impression”, may well have led to this litigation. However, that failure is not itself of the requisite character as litigant that it calls for making an indemnity costs order against Mr Della. Were it otherwise almost every defendant who by unreasonable conduct caused litigation to be commenced would attract an adverse indemnity costs order.

149 For these reasons the Court declines to make an indemnity costs order against Mr Della.

Mr Della Should Indemnify Dellmain for Defence Costs

150 Jankar claims that Mr Della should indemnify Dellmain for the costs expended by Dellmain in defending Jankar’s winding up application. This is put on the basis that these proceedings are essentially a dispute between Jankar and Mr Della. Jankar says: that it should never have had to commence proceedings to have the shares issued or for Mr Currie to be appointed as a director; that Mr Della should have agreed to the appointment of a liquidator or administrator from the time proceedings were commenced; that Mr Della’s duty to cause Dellmain to take the actions required by the Interlocutory Process (by issuing the shares and appointing Mr Currie as a director) were not only required of him by contract but he owed duties as a director of Dellmain to take those actions; yet, he caused Dellmain to resist the grant of relief to Jankar and in doing so expended Dellmain’s resources on defence legal costs. Jankar submits that it would be unjust if Dellmain’s assets were reduced by Dellmain’s payment of those legal costs, which would in turn reduce the value of the plaintiff’s shareholding in Dellmain. Jankar says it would also be unfair to Dellmain’s creditors, as the assets available to them would be reduced by the quantum of those costs.

151 Applications for indemnity for the company’s defence costs are a feature of oppression cases: see for example Cassegrain & Anor v CTK Engineering Pty Limited & Anor. Jurisdiction to make such an indemnity order is frequently authorised under s 233 Corporations Act 2001. Jankar submits that jurisdiction to make an indemnity order is conferred both by s 98 Civil Procedure Act 2005 and s 1335(2) Corporations Act 2001. Mr Della has conceded that if circumstances warrant the making of the order, jurisdiction exists under s 1335(2).

152 Mr Johnson’s concession about the availability of jurisdiction under s 1335(2) is sound. Section s 1335(2) provides:

“(2) The costs of any proceedings before a Court under this Act are to be borne by such party to the proceedings as the Court, in its discretion, directs”.

Consolidated Byrnes Holdings Limited v Hardel Investments Pty Limited

Civil Procedure Act

Corporations Act

Re Struthers; Paci Pty Limted (In liquidation)

Civil Procedure Act

Corporations Act

153 For the reasons already stated I have found that Mr Della engaged in unreasonable conduct in the prelude to and in defending these proceedings at the time of the Interlocutory Process and subsequently. I have also found that Mr Della conducted Dellmain’s affairs in a manner that was oppressive and unfairly prejudicial to Jankar, Dellmain’s 50% shareholder, and that Jankar would have almost certainly achieved a winding up order under s 461(1)(f) had there been a full contest on that ground for winding up. I have made a similar finding in relation to s 461(1)(e). In those circumstances Mr Della should take financial responsibility for Dellmain’s defence costs in these proceedings.

154 The final form of order Jankar seeks is:

“Order that the third defendant pay the first defendant’s [Dellmain’s] costs of the Interlocutory Process and of the proceedings on an indemnity basis”.

155 That is the order that I will make.

Orders

156 For these reasons I make the following orders:

1. Order that the third defendant pay the plaintiff's costs of the interlocutory process and the proceedings.

**********

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Citations

Jankar v Dellmain [2009] NSWSC 766

Most Recent Citation

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CITATION:	Jankar v Dellmain & Ors [2009] NSWSC 766
HEARING DATE(S):	3 June 2009
JUDGMENT DATE :	4 September 2009
JURISDICTION:	Equity
JUDGMENT OF:	Slattery J at 1
DECISION:	Orders: (1) The third defendant pay the plaintiff's costs of the interlocutory process and the proceedings. (2) The third defendant pay the first defendant's costs of the interlocutory process and of the proceedings on an indemnity basis.
CATCHWORDS:	CORPORATIONS - winding up - application for winding up by court - winding up conceded on the just and equitable basis under s 461(1)(k) Corporations Act 2001 - winding up would have been justified under s 461(1)(e) Corporations Act 2001 had it been fully contested - a winding up under s 461(1)(f) Corporations Act 2001 would also have been justified - third defendant engages in oppressive conduct - third defendant unreasonably causes the first defendant defend the proceedings - COSTS - an order that the third defendant pay the plaintiff's costs - an order that the third defendant indemnify the first defendant in respect of its defence costs
LEGISLATION CITED:	Corporations Act 2001 Civil Procedure Act 2005
CATEGORY:	Principal judgment
CASES CITED:	Ali v Nationwide News Pty Limited [2008] NSWSC 183 Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489 Baillieu Knight Frank (NSW) v Ted Manny Real Estate Pty Limited (1992) 30 NSWLR 359 Booker v You Run the Business (2008) FCA 1672 Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2005] NSWSC 495 Consolidated Byrnes Holdings Limited v Hardel Investments Pty Limited (2009) FCA 399 Degman Pty Limted (in liquidation) v Wright (1983) 2 NSWLR 354 Ebrahimi v Westbourne Galleries Limited (1973 ) AC 360 Harrison v Schipp; Cameron v Schipp [2001] NSWCA 13 HSH Hotels (Australia) Limited v Multiplex Constructions Pty Limited [2004] NSWCA 302 Hypec Electronics Pty Limited (in liquidation) v Mead (2004) 61 NSWLR 169 In Re Wilcox; Venture Industries Pty Limited (No 2) (1996) 72 FCR 151 Johnny Ocean’s Restaurant v Page (2003) NSWSC 952 Kinsella v Russell Kinsella Pty Limited (1986) 10 ACLR 395 Latoudis v Casey (1990) 170 CLR 54 Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692 NMFM Property Pty Limited v Citibank (No 2) (2001) 109 FCR 77 Ohn v Walton (1995) 36 NSWLR 77 Oshlack v Richmond River Council (1998) 93 CLR 72 Quinlan v Essex Hinge Co Limited [1996] 2 BCLC 417 Re Back 2 Bay 6 Pty Limited (1994) 12 ACSR 614 Re Fountain Selected Meats (1988) 81 ALR 397 Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin [1997] HCA 6; (1997) 143 ALR 1; (1997) 186 CLR 622 Re Struthers; Paci Pty Limted (In liquidation) (2005) 64 NSWLR 392 Ruhani v Director of Police (2005) 222 CLR 489 Shum Yip Properties Development Limited v Chatswood Investment & Development Co Pty Limited (2002) 40 ACSR 619
PARTIES:	J & M Jankar Pty Limited (Plaintiff) Dellmain Pty Limited (ACN 098 056 430) (First Defendant) Nature Meat Co Pty Ltd (ACN 097 846 369) (Second Defendant) Alain Della (Third Defendant)
FILE NUMBER(S):	SC 5983/08
COUNSEL:	Mr C Harris SC (Plaintiff) Mr J T Johnson (Third Defendant)
SOLICITORS:	Colin Biggers & Paisley (Plaintiff) Creagh & Creagh (Third Defendant)