Pesec v Zivko

[2025] ACTCA 37

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COURT OF APPEAL

Case Title:

Pesec v Zivko

Citation: 

[2025] ACTCA 37

Hearing Dates: 

4 August 2025

Decision Date: 

2 September 2025

Before:

Taylor, Charlesworth and Stewart JJ

Decision: 

See [30].

Catchwords: 

APPEAL – appeal from costs orders – issue of duplicative representation – whether primary judge erred in concluding that at the date of the offer of compromise there was no possibility of conflict between interests – whether joint offer of compromise indicative of commonality of interest – discretionary nature of costs orders – cross-appeal dismissed   

Legislation Cited: 

Corporations Act 2001 (Cth), ss 198A, 232, 247A

Supreme Court Act 1933 (ACT), s 37E

Cases Cited: 

Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) [2023] FCAFC 140; 299 FCR 224

House v The King (1936) 55 CLR 499

Pesec v Zivko (No 3) [2024] ACTSC 325

Pesec v Zivko (No 4) [2024] ACTSC 361

Statham v Shephard (No 2) (1974) 23 FLR 244

Zeltner v Deputy Registrar of the Supreme Court (No 2) [2022] ACTCA 30; 370 FLR 78

Parties: 

Anthony Pesec ( Appellant and Cross-Respondent)

Josip Pavao Zivko ( First Respondent)

Frank Crnkovic (Second Respondent)

Mirko Skrnjug (Third Respondent)

Rein Heins (Fourth Respondent)

Noel Edward McCann (Fifth Respondent)

XO 1 Pty Ltd (Sixth Respondent)

Consolidated Builders Limited (Seventh Respondent and Cross-Appellant)

Representation: 

Counsel

Mr M Pesman SC with Mr R Higgins ( Appellant and Cross-Respondent)

Mr D Thomas SC ( First and Sixth Respondents)

Mr J Hutton SC with Ms Z Graus (Second to Fifth Respondents)

Mr M O’Meara SC (Seventh Respondent and Cross-Appellant)

Solicitors

Chamberlains Law ( Appellant and Cross-Respondent)

Allens (First and Sixth Respondents)

Thomson Geer (Second to Fifth Respondents)

Clayton Utz (Seventh Respondent and Cross-Appellant)

File Number:

AC 37 of 2024

Decision Under Appeal: 

Court:  Supreme Court of the Australian Capital Territory

Before:   McCallum CJ

Date of Decision:       21 November 2024

Case Title:                 Pesec v Zivko (No 4)

Citation: [2024] ACTSC 361

THE COURT

Introduction

1․This appeal relates to a question of costs.

2․The primary judge dismissed an action commenced by Mr Anthony Pesec against Consolidated Builders Limited (‘Consolidated’), its managing director (Mr Josip Zivko) and (relevantly) four of the Company’s non-executive directors:  Pesec v Zivko (No 3) [2024] ACTSC 325 (Pesec (No 3)).  Mr Pesec was later ordered to pay the defendants’ costs:  Pesec v Zivko (No 4) [2024] ACTSC 361 (Pesec (No 4)).  The relevant cost orders required Mr Pesec to pay:

(a)the costs of the non-executive directors and, separately the costs of the Company up to and including 10 August 2022; and

(b)the costs of the non-executive directors and the Company on the basis that, from 11 August 2022, those defendants were to be treated as having been represented by the same counsel and the same solicitors, with the intent that those defendants be allowed a single set of costs from that date.

3․In this proceeding, Mr Pesec appealed from the judgment and orders in Pesec (No 3) and Consolidated commenced a cross-appeal from the cost orders.  The appeal and cross-appeal were set down for hearing together.

4․At the commencement of the hearing, the appeal was dismissed with costs after Mr Pesec confirmed that it was not maintained.  An issue arose as to whether Consolidated required leave to appeal from the cost orders:  Supreme Court Act 1933 (ACT), s 37E; Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) [2023] FCAFC 140; 299 FCR 224, Colvin, Stewart and Feutrill JJ. It is not necessary to express a concluded view on that question. That is because Mr Pesec acknowledged that leave should be granted in the event that there was merit in any one of the grounds relied upon. Consolidated also acknowledged that the outcome should turn on the merits of its grounds.

5․It is convenient to now refer to the cross-appeal as simply “the appeal”.

Reasons of the primary judge

6․The case that Mr Pesec took to trial was considerably narrower than that initially framed in his originating application. By the conclusion of the trial his claim was limited to an allegation that the defendants had engaged in oppressive conduct and so contravened s 232 of the Corporations Act 2001 (Cth) in two respects, the first relating to asymmetry in information regarding the value of Consolidated’s assets and the second relating to a remuneration package agreed with Mr Zivko involving an option to purchase shares.

7․Among the abandoned claims were allegations that the directors were in breach of fiduciary and statutory duties owed to Consolidated.

8․The primary judge referred to the principles discussed Statham v Shephard (No 2) (1974) 23 FLR 244. There, Woodward J said that a court would not ordinarily allow two sets of costs in a case where there is no possible conflict of interest between defendants in the presentation of their cases. To that, he added three provisos (at 246 – 247):

…  In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary inquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between the defendants.

Secondly, there could be circumstances in which, although the defendants are united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arm’s length during the general course of litigation.

Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time.

9․The primary judge described the defence of Mr Pesec’s claims as “vigorous and comprehensive” (Pesec (No 4) at [10]), later adding that “their separate submissions” both on substantive points and on the question of costs “in large measure repeated and fortified each other’s points” (Pesec (No 4) at [21]).

10․The primary judge said that at the outset of the proceeding, the relief that Mr Pesec sought had “plainly put the interests of the directors in conflict with the interests of the company, as it was alleged that the non-executive directors breached fiduciary and statutory duties owed to the Company” and equitable relief had been sought on that basis (Pesec (No 4) at [24]). Her Honour said that the claims of breach of duty gave rise to conflicting interests justifying a decision to have separate representation at that stage.

11․The primary judge said that by the time of the trial, it was clear that the claims alleging breach of directors’ duties were not pressed, notwithstanding that the originating application had not been amended.  Her Honour said that “the interests of all defendants were very much aligned, to the point where they presented as a large team, cooperatively dividing topics among themselves” with the effect that Mr Pesec faced a “triply well-armed” opposition (Pesec (No 4) at [25]).

12․The primary judge accepted that there would have been a divergence of the interests between Mr Zivko vis a vis those of Consolidated in the event that the occasion arose to consider whether there should be an order rescinding the issue of shares to Mr Zivko and his associated entity.  However, in relation to the non-executive directors, her Honour said (Pesec (No 4) at [29]):

…  It was not explained how, in circumstances where Consolidated joined the non-executive directors in defending their decision, the interests of the non-executive directors (in that capacity) would have diverged from Consolidated’s at that point.  …

13․The primary judge discerned a central proposition from the cases that the factors that govern the Court’s discretion as to costs are different from the considerations that govern a litigant’s choices about participation and representation.

14․The primary judge went on to conclude:

36.Consolidated submitted that, at all points, Mr Pesec sought relief which was ‘either against Consolidated or which was relief with the capacity to adversely affect the interests of Consolidated (ie, claims for rescission of shares issued to the first and sixth defendants)’.  Consolidated submitted, and I accept, that it was both necessary and appropriate that Consolidated respond to those claims.  What was not explained was how, in respect of either of the limbs of Mr Pesec’s case at hearing, Consolidated’s interests were in conflict with those of the non-executive directors such that separate representation was necessary.

37.I am satisfied that, from at least the time the joint offer of compromise was sent, there was no real possibility of conflict between Consolidated’s interests and those of the non-executive directors.  Accordingly, Consolidated's separate representation at the hearing resulted in significant duplication of costs at the Bar table.

38.That is not to say that the defendants were not entitled to separate representation; on the contrary, I have no doubt that was good strategy.  However, given the measure of overlap in the issues addressed by the defendants and their clear alignment against Mr Pesec, which was evident at the hearing and can be traced back at least as far as the offer of compromise, I am satisfied that Mr Pesec should not have to bear the costs of both sets of lawyers at the hearing.

15․The costs orders were framed so as to require an assessment of costs on the basis that the defendants were to be treated as having been represented by the same counsel and the same solicitors with the intent that Mr Pesec pay a single set of costs from the date on which the offer of compromise was made.  That date was 11 August 2022.

The appeal

16․By its grounds of appeal, Consolidated contends that the primary judge erred in two respects:  by concluding that from 11 August 2022 there was no possibility of conflict between the interests of Consolidated on the one hand and the non-executive directors on the other, and by having regard to the offer of compromise as indicating that there was no real possibility of such a conflict.

17․Relatedly, Consolidated contends that the primary judge should have found that there was no material alteration in the position immediately before the joint offer of compromise was sent (on 11 August 2022) to that which existed at all points afterward, so as to justify depriving Consolidated of a costs order to which it would otherwise have been entitled.

18․As Consolidated acknowledged, the power to award costs is discretionary.  An appeal court should only interfere with a costs order if there is error of the kind identified in House v The King (1936) 55 CLR 499 (at 504 – 505), namely:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles.  It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course.  It must appear that some error has been made in exercising the discretion.  If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.  It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.  In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

19․See also Zeltner v Deputy Registrar of the Supreme Court (No 2) [2022] ACTCA 30; 370 FLR 78 (at [47] – [48]).

20․It was submitted that the joint offer of compromise ought not to have been taken into account as indicative of a commonality of interest between Consolidated and the non-executive directors.

21․In our view, the submissions overstate the significance of the joint offer of compromise in the reasoning of the primary judge.  The primary judge did not find that the commonality of interests commenced on the day of and by virtue of the joint offer of compromise.  Rather, her Honour had regard to the degree of commonality in the presentation of the cases at trial and the degree of duplication of resources devoted to the defence of Mr Pesec’s claims on substantially the same bases.  The primary judge said that there was a commonality of interest that could be identified at least from the date that the joint offer of compromise was made.  Given what is said below, it was open to the primary judge to reach a position more adverse to Consolidated than that in fact reached.

22․Consolidated further submitted that the primary judge failed to take into account two relevant considerations, the first being the circumstance that it was not reasonable to expect Consolidated and the non-executive directors to abandon the separate representation they had engaged before the claims alleging breach of directors’ duties were abandoned, the second being the possibility that the claims alleging breach of directors’ duties might re-emerge, so re-enlivening a “contingent” conflict that justified the separate representation from the outset.

23․The problem with that submission is that the primary judge did not make a finding that Consolidated was not entitled to have separate representation.  Rather, her Honour concluded that in a case where there was a likelihood of conflict of interest vis a vis Consolidated and the non-executive directors re-emerging, Consolidated should have corresponded with Mr Pesec to seek clarification about the presentation of his case.  Moreover, the reasons of the primary judge focus upon the aligned cases in fact presented at the trial.  Her Honour identified the case as one falling within the first or third scenarios discussed by Woodward J in Statham, concluding that Mr Pesec should not have to pay all of the costs of both legal teams given the duplication in the conduct of their defences.  In that regard, the primary judge had the unique advantage of observing the trial and the utilisation of the parties’ legal resources.  There is no basis to interfere with the conclusions her Honour reached.

24․That is sufficient to dispose of the grounds of appeal.  We will order that the appeal be dismissed without addressing the question of leave.

25․Before concluding, we add that it is not at all clear to this Court how the interests of Consolidated and the non-executive directors could be in conflict in the defence of a claim involving an allegation of breach of directors’ duties.  Those duties are owed to Consolidated and only Consolidated could sue for their breach.  This Court was informed that Mr Pesec was unsuccessful on an earlier application for leave to bring a derivative action alleging breach of statutory duties, in Consolidated’s name.  It is not at all clear how the allegation of a breach of directors’ duties could have been maintained against Consolidated on the originating application from the outset.  If there was any uncertainty as to whether an allegation of breach of directors’ duties at general law might “re-emerge”, then it was open to Consolidated to seek to have such a claim struck out on the basis that it is the only proper plaintiff on such a suit – noting also that although such a claim was foreshadowed in the originating process it was never pleaded in the statement of claim.  In addition, it was open to Consolidated to remain agnostic in connection with those causes of action that did not give rise to a conflict of interest.

26․Consolidated submitted that it had an interest in maintaining a defence to the claim against the non-executive directors, which although ultimately not pressed was never formally abandoned, because of its interest in “the efficient and proper administration of the company”.  It submitted that that interest was potentially damaged by the claim for equitable compensation to be paid to it for breach of directors’ duties, and that the conflict between its interest and those of the directors would arise at the point at which there was a finding of breach of duties because at that point it would be entitled to compensation from the directors, i.e. it was a contingent conflict.  We reject those submissions.  The company had no legal interest in defending the claim by one of its shareholders against one or more of its directors.

27․In addition, it is reasonable to presume that Consolidated defended Mr Pesec’s claims on the instructions of the very directors who were said to have engaged in the conduct amounting to oppressive conduct of Consolidated’s affairs, being the very directors alleged to have breached duties owed to Consolidated.  In that sense it might be said that whilst the suit was about Consolidated, and whilst it was named as a defendant, the case was not against Consolidated in a sense that might give rise to a realistic likelihood of a conflict of interest emerging.  The circumstance that Consolidated might be ordered to rescind transactions for the issues of shares is not of itself suggestive of conflict in the trial of the dispute, but rather a consequence of the grant of relief should the dispute be resolved in Mr Pesec’s favour.

28․Accordingly, even if this Court had occasion to re-exercise the discretion afresh, we would likely arrive at the same conclusion, albeit by a different route, questioning whether it was reasonable for Consolidated to have participated in the trial to the extent that it did.  That would have resulted in a potentially less favourable outcome for Consolidated with respect to the recovery of its costs.

29․There will be an order dismissing the cross-appeal, with costs following that event in the ordinary course.

Orders

30․For those reasons, the following orders are made:

(a)The cross appeal is dismissed.

(b)The cross appellant is to pay the cross-respondent’s costs.

I certify that the preceding thirty [30] numbered paragraphs are a true copy of the Reasons for Judgment of the Court

Associate:

Date: 2 September 2025