Northtronics Pty Ltd v Coutts-Smith

[2010] QSC 423

[2010] QSC 423

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

PETER LYONS J

No 9881 of 2010

NORTHTRONICS PTY LTD (ACN 102 205 096)	Applicant
and
GEOFFREY COUTTS-SMITH	Respondent

BRISBANE

..DATE 05/11/2010

..DAY 1

ORDER

The plaintiff, to whom I shall refer as Northtronics, is one of a number of companies associated with a company, Genesis BDI Ltd.  Until July this year, the defendant was a director of the plaintiff.  Early this year, steps were taken to establish a company in the United Kingdom to which I shall refer as Titley UK, which would distribute products of the plaintiff.  The defendant was involved in the establishment of Titley UK and was its sole shareholder.  The defendant has been a director of other companies in the group associated with Genesis BDI. 

In June and July, disputes arose between the defendant and others associated with this group, which have resulted in the defendant ceasing to be a director of the plaintiff on the 21st of July 2010, and of some other companies in the group at other dates about that time and subsequently. 

The plaintiff's solicitors wrote to the defendant's solicitors on the 30th of July 2010 calling for the execution of a share transfer in favour of Northtronics of the share in Titley UK and the taking of some other steps, including steps relating to the bank account of Titley UK.

A similar demand was made in a letter from the plaintiff's solicitors to the defendant of the 31st of August 2010.  Another such demand was made in a letter of the 6th of September 2010.  The demands not having been complied with, these proceedings were commenced by originating application on 14 September 2010 and the matter was to come on for final hearing today. 

However, on 26 October 2010 a share transfer form for the share in Titley U.K. was delivered to the plaintiff's solicitors, and by a letter of that date, the defendant agreed to execute any documents reasonably necessary to appoint new signatories to any bank account of Titley U.K., and to take some other steps to which it is not necessary to refer.

As a result, the only outstanding issue in the proceedings is the question of costs.  The plaintiff seeks its costs on the standard basis until the 26th of October 2010 and on an indemnity basis thereafter.  The defendant has also made an application as to costs.

There not having been a final determination of the proceedings, it seems to me that the principles which apply to applications for costs in these circumstances are those identified in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia, ex parte Lai Qin (1997) 186 CLR 622.

McHugh J, sitting alone, was called upon to determine the application for the costs of proceedings where the proceedings themselves no longer required determination.   His Honour first stated that when there has been no hearing of a case on its merits, a Court is necessarily deprived of the factor that usually determines whether or how a costs order will be made: see page 624.  He then observed that in such cases a Court may nevertheless make an order for costs and identified two circumstances in which that might occur.  One is where the Court concludes that one of the parties has acted so unreasonably that the other should have the benefit of an order for the payment of the costs of the action.  The other appears from the following statement (at page 625): "Moreover, in some cases a judge may feel confident that, although both parties had acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried."  Otherwise, his Honour stated, "The proper exercise of the cost discretion will usually mean that the Court will make no orders as to costs of the proceedings" (see page 625). 

Counsel for the defendant points to the fact that the plaintiff's case is based on the proposition the defendant owed a fiduciary obligation to the plaintiff and that it was on that basis that the relief was sought.

He submitted that the defendant could have succeeded at trial, either by showing that in truth any obligation was contractual or that it was owed to some entity other than the plaintiff, or that the defendant himself was beneficially entitled to the share in Titley U.K. 

The last proposition seems in fact to have been the position of the plaintiff.  In affidavit sworn on 28 September 2010, he said that he contended that he was entitled to the beneficial ownership of the share in Titley U.K., and that he was not the trustee for the applicant of that share.  The basis for his contention was said to relate to what was described as the common structure for the ownership of investee entities which included ownership by entities associated with the defendant, with other persons, and Genesis BDI; and to his actions in relationship to the establishment of Titley U.K.

His Counsel also pointed to some e-mails from about the middle of 2008 relating to arrangements then contemplated apparently for the distribution of Northtronics' products, where consideration was given to a structure of companies relating to that matter and the need or desirability of taxation advice in determining how those things would occur.  I should observe that that is a not insignificant period of time before the events which had led to these proceedings and seem to reflect a proposal which was at some point abandoned. 

The actions relating to the establishment of Titley UK took place in the early part of this year.  On the 21st of January 2010, the defendant sent an e-mail to a Ms Hornabrook who is employed with accountants in Australia, a copy of which is exhibited to his affidavit sworn yesterday.  The subject is: "Northtronics - Proposed UK Ops".  The e-mail commences with the following:

"As discussed, it is the intention that Northtronics will be opening a local UK operation (based in Cardiff) during early February.  

It is intended that this will be run through an incorporated UK entity - ignoring any tax consequences as to who the shareholders should be (we have had some preliminary discussions with Murray Howat in this regard)."

Counsel for the defendant drew my attention to an e-mail of the 15th of February 2010 from an accountant in the United Kingdom to an employee of Tribune Capital, a company associated with the defendant.  That e-mail includes the following:

"Currently, Geoffrey (the defendant) wholly owns the whole company (Titley UK) and he is considering perhaps issuing new shares to either individuals or a corporate, such that this then becomes a group company ...

If (Titley UK) is owned 100 per cent by another group company, then it would be a full subsidiary and the tax bands would be divided ...

From the sounds of it, a 100 per cent subsidiary seems the logical answer and what you intend anyway."

The defendant had the responsibility for the preparation of a director's report for Genesis BDI and its controlled entities.  On the 1st of April 2010, he sent an e-mail to Mr Lim, who was employed by one of the companies in the group of companies to which I have previously referred.  The e-mail included the following:

"With regard to the Annual Report, we have had a short week with Easter, and I am still finalising the Directors' Report element.  This should be finalised during the evening, and it will be circulated to you this evening or during Friday.  I will need to have any feedback by Tuesday COB if possible, please.  This will allow me time to coordinate and review any suggested changes prior to the meeting."

The final version of the report was signed by the defendant and included the following:

"Investee Activity:

"Northtronics Pty Ltd has established operations in the United Kingdom and, accordingly, he has established a 100 per cent subsidiary – (Titley UK) which is incorporated in the UK ..."

Notwithstanding the submissions advanced on behalf of the defendant, in light of the e-mails this year, and the Directors' Report to which I have made reference, and the defendant's conduct in surrendering the share, it seems to me that the plaintiff was almost certain to have succeeded if the matter had been fully tried.  I therefore consider that the plaintiff should have the benefit of a costs order against the defendant for the proceedings. 

I note at this point that the defendant has made a submission that some costs were incurred because these proceedings were commenced by way of originating application when it was almost inevitable that there would be issues of fact.  I am not sure in light of the directors' report in the earlier e-mails that that was inevitably the case.  In any event, it is not by any means clear that the defendant would not have resisted a claim had it progressed by way of pleadings, nor that there would have been any significant saving of costs from the defendant's point of view if that had occurred. 

I therefore propose to make an order for costs in favour of the plaintiff, but because an issue remains as to the basis on which those costs should be assessed after the 26th of October 2010, I propose to hear further submissions on that matter. 

...

HIS HONOUR:  I dismiss the plaintiff's proceedings.  I order that the defendant pay the plaintiff's costs of and incidental to the proceedings including reserved costs to be assessed on the standard basis. 

I direct that documents produced to the Court in response to any subpoena be returned to the party producing them.

I dismiss the defendant's application for costs.

...

HIS HONOUR:  I certify that this was an appropriate case for the plaintiff to retain senior and junior counsel.