SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Pesec v Consolidated Builders Ltd (No 4) |
Citation: | [2021] ACTSC 188 |
Hearing Date: | 13 August 2021 |
DecisionDate: | 19 August 2021 |
Before: | McWilliam AsJ |
Decision: | The plaintiff is to pay 75% of the defendant’s costs of the proceedings. |
Catchwords: | PRACTICE AND PROCEDURE – COSTS – where unsuccessful plaintiff sought an order that parties each pay their own costs – whether discrete or dominant issue – where no disentitling conduct on the part of the defendant – whether circumstances otherwise justify deviation from usual order that costs follow the event |
Legislation Cited: | Corporations Act 2001 (Cth) ss 237, 211 Court Procedures Rules 2006 (ACT) rr 1705, 1721 |
Cases Cited: | Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Clarkson Williams Partners Pty Ltd v Vaughan (No 2) [2016] ACTCA 8 |
Parties: | Anthony Pesec ( Plaintiff) Consolidated Builders Limited ( Defendant) |
Representation: | Counsel R Markham ( Plaintiff) M O’Meara SC ( Defendant) |
| Solicitors Adero Law ( Plaintiff) Clayton Utz ( Defendant) | |
File Number: | SC 179 of 2020 |
McWilliam AsJ:
On 13 April 2021, I made orders dismissing an application made by a shareholder, Mr Anthony Pesec (the plaintiff), for leave to bring a derivative action on behalf of the defendant company, Consolidated Builders Ltd (CBL). Reasons were subsequently delivered on 28 May 2021: see Pesec v Consolidated Builders Ltd (No 3) [2021] ACTSC 105 (Pesec (No 3)).
The plaintiff then sought an order that there be no order as to costs. In the alternative, the plaintiff sought that any costs order made in CBL’s favour be limited to the costs incurred in connection with responding to the application in proceeding first filed on 14 May 2020.
The reason the alternative order was sought was a concern that earlier legal costs incurred in relation to an Extraordinary General Meeting held on 18 December 2019 (EGM) were unrelated to the proceedings, and instead related to CBL deliberating whether to bring proceedings in its own name.
The defendant submitted that the plaintiff should pay the defendant’s costs of the proceedings, as there was no reason to depart from the usual approach that costs follow the event.
The parties provided useful written and oral submissions. I have incorporated parts of those submissions and the authorities relied upon by each party in the consideration that follows.
Applicable principles
Costs are in the discretion of the Court: see r 1721(1) of the Court Procedures Rules 2006 (ACT) (the Rules). As costs are compensatory, ordinarily the discretion is exercised to award costs in favour of the successful party; that is,…
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- Case
- [2021] ACTSC 188
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included determining whether each of the five criteria required for a grant of leave was a separate issue, and if so, whether Pesec had met at least two of the contested criteria. The plaintiff argued that there was a serious question to be tried due to CBL's failure to investigate his concerns properly, produce relevant materials, or facilitate shareholder inquiries. Pesec also contended that he acted in good faith and that the proceedings were in the best interests of CBL, although he acknowledged that he did not succeed on the latter point. CBL, on the other hand, argued that Pesec's claims were not reasonable and that the matters raised were irrelevant to the resolution of the issue of costs.
The court found that Pesec had succeeded in establishing two out of the three contested criteria for the grant of leave. The court emphasised that the criteria were not entirely separate and were often intertwined, but acknowledged that the first two criteria played a dominant role in the proceedings. The court considered the evidence and arguments presented, including the expert accountants' reports and the testimonies of Ms Hambly and Mr Harris, to conclude that Pesec had met the requirements for a serious question to be tried and acted in good faith. However, the court determined that the proceedings were not in the best interests of CBL, leading to the denial of leave.
The final orders of the court were that Pesec had not met all the criteria required for a grant of leave under section 237 of the Corporations Act. The court denied the plaintiff's application for leave to pursue the legal action against CBL.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The plaintiff argued that each of the five criteria required for a grant of leave pursuant to s 237 of the Corporations Act 2001 (Cth) (Corporations Act) (as to which see Pesec (No 3) at [7]) were separate issues, and further, that he succeeded on two out of the three contested criteria for the grant of leave. Those criteria were: whether there was a serious question to be tried; whether the plaintiff was acting in good faith; and whether the grant of leave was in the best interests of the company. The only criterion on which the plaintiff failed was whether the proceedings were in the best interests of CBL. In respect of whether there was a serious issue to be tried, the plaintiff submitted that the defendant’s conduct in defending the point was unreasonable. The plaintiff pointed to evidence that certain factual enquiries were not made and further, that before the hearing, CBL failed to produce material that should have been produced to the plaintiff. He argued that CBL did not investigate the material concerns of the plaintiff in any genuine way prior to trial. Further, CBL did not provide information that would have facilitated individual shareholder inquiries into the conduct of CBL. Further still, CBL did not take reasonable steps to allow the plaintiff to nominate a member to join the committee of investigation to properly investigate his concerns and report to the shareholders: see Pesec (No 3) at [20]. CBL also did not undertake an independent valuation of its assets. The plaintiff contended there was no evidence of substance with respect to the serious question ground. As such, the plaintiff was bound to succeed on the point and the defendant should have conceded the issue. The plaintiff contended that significant time was devoted to whether there was a serious question to be tried, submitting that 75% of the time at hearing was devoted to that question. CBL submitted that it was successful on the “event”, in that the plaintiff did not obtain the orders he sought. The Court should not dissect and separate the issues that were the subject of hearing for the purposes of attempting to apportion costs. Further, there was no unreasonable conduct on the question whether there was a serious question to be tried. CBL submitted that there were multiple issues raised on that point. Some were factual but some were legal, and the question was intertwined with the other issues, including the broader question of whether the litigation was in the best interests of the company: see Pesec (No 3) at [13], [45] and [121]. In any event, CBL submitted that the matters raised by the plaintiff were irrelevant to the resolution of the issue of costs, and merely sought to relitigate matters that were determined in Pesec (No 3) or were never in issue. Notwithstanding the plaintiff did not achieve the orders sought, the plaintiff did establish two out of the three criteria that were contested at hearing. The two issues, or criteria, on which the plaintiff succeeded collectively played a dominant part in the evidence, the written submissions and oral arguments. The reports of the expert accountants and their subsequent cross-examination were primarily directed to the first of the contested issues, namely whether there was a serious question to be tried. The evidence of Ms Hambly and Mr Harris were also each directed to different aspects of that issue. The reasons for judgment in Pesec (No 3) further reflect the substantial arguments required to be considered in respect of those two criteria.