Pharaoh Gold Mines Nl v Pharaoh Metals Corp Nl

[1996] FCA 601

CATCHWORDS

PRACTICE AND PROCEDURE - costs - discretion of the Court - whether indemnity costs appropriate - refusal to issue share scrip after allotment - whether wilful disregard of law - whether application to Court necessary

Corporations Law, ss205, 260, 777, 995, 1114 and 1324

Australian Transport Insurance Pty v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Preston v Preston [1982] 1 All ER 41

PHARAOH GOLD MINES NL v PHARAOH METALS CORPORATION NL and AUSTRALIAN STOCK EXCHANGE LIMITED
(ACN 008 624 691)
NO WAG 3027 OF 1996

R D NICHOLSON J
PERTH
19 JULY 1996

IN THE FEDERAL COURT OF AUSTRALIA            )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION  )                 NO WAG 3027 OF 1996

B E T W E E N:  PHARAOH GOLD MINES NL

Applicant

and

PHARAOH METALS CORPORATION NL

First Respondent

AUSTRALIAN STOCK EXCHANGE LIMITED

(ACN 008 624 691)

Second Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:            R D NICHOLSON J

DATE OF ORDER:  19 JULY 1996

WHERE MADE:  PERTH

THE COURT ORDERS THAT:

1.The application be dismissed.

2.The first respondent pay the costs of the applicant, to be taxed.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA            )

WESTERN AUSTRALIA DISTRICT REGISTRY )

GENERAL DIVISION  )                 NO WAG 3027 OF 1996

B E T W E E N:  PHARAOH GOLD MINES NL

Applicant

and

PHARAOH METALS CORPORATION NL

First Respondent

AUSTRALIAN STOCK EXCHANGE LIMITED

(ACN 008 624 691)

Second Respondent

CORAM:R D NICHOLSON J

DATE:19 JULY 1996

PLACE:PERTH

REASONS FOR JUDGMENT

The applicant sought a declaration that s205 of the Corporations Law had not been breached in relation to the subscription of the applicant for 900,000 ordinary shares of fifty cents each in the first respondent, being its entitlement pursuant to the first respondent's one for two non‑renounceable pro‑rata issue of up to 54,452,000 ordinary shares ("the Entitlement") at an issue price of two cents per share detailed in a prospectus of the first respondent dated 30 April 1996. Orders were also sought pursuant to ss260, 777, 995, 1114 and 1324 of Corporations Law requiring the first respondent to allot, issue and dispatch the plaintiff's entitlement forthwith.

On the matter coming to Court it became immediately apparent from affidavit evidence that the allotment had taken place but the first respondent was declining to issue and dispatch the applicant's share certificates.  That position arose in the following circumstances.

There is an ongoing dispute between the applicant and the first respondent concerning certain money and assets which the first respondent forwarded to the applicant in Egypt pursuant to an agreement said to have been made between the parties.  The first respondent maintains the applicant holds the money and assets in trust for the first respondent.  The first respondent has demanded the return of the money and goods but says that the applicant has failed to comply with the demand.  The evidence for the first respondent is that its solicitors have been instructed to draft a written Statement of Claim seeking inter alia the return of the monies and goods said to be held in trust.

The first respondent was also of the view the applicant had no funds, other than those of the first respondent said to be held in trust, with which to purchase shares in the first respondent. Accordingly, when it received an application from the applicant for an entitlement of 931,500 shares by virtue of a rights issue in the first respondent, the first respondent instructed its solicitors to enquire of the applicant whether or not the acquisition of the shares may be in breach of s205 of the Corporations Law. The solicitors advised the applicant it would be imprudent to proceed with the issue of the shares to it without proof that the first respondent was not directly or indirectly providing finance for the purchase of its own shares. Accordingly, the solicitors advised the applicant the first respondent would be withholding the share certificates until the matter was resolved. At the same time the solicitors said "in this respect, our client would accept a declaration from a Court or notification from the Australian Securities Commission that it is satisfied that no breach of s205 is occurring by virtue of this transaction". That communication took place on 28 June 1996.

On 3 June 1996 the solicitors for the applicant advised the money being used by it to take up the entitlement "was obtained in its entirety from loans from third parties". In addition, it was said even if the funds had come from either the bank account in Egypt or the sale of assets claimed by the first respondent, it would not be a breach of s205 as the funds were not provided to the applicant for the purposes of acquiring the shares: see Corporation Law, s205. The solicitors requested confirmation the scrip would issue, failing which they had instructions to proceed with an application to the Court and to seek costs on a full indemnity basis.

On 4 July 1996 the solicitors for the first respondent replied stating its directors were not refusing to authorise the issue of shares but were only seeking confirmation the shares have not been issued by reason of financial assistance directly or indirectly supplied in connection with the acquisition.  The solicitor said the first respondent would accept a direction from the Court.  In relation to the evidence of the source of funds already supplied, the first respondent's solicitors requested the applicant's solicitors to clarify whether they were making this statement on behalf of their client or making it as a matter of personal knowledge.  The first respondent's solicitors also said as previous statements of the principal of the applicant had proved to be "entirely untrue" they could not accept anything but "the best evidence available in the circumstances" to establish that none of the first respondents funds have been used for the acquisition of the applicant's shares.  An acknowledgment was made of the liberty of the applicant to issue court proceedings and the willingness of the first respondent to abide by them. 

When the matter first came before the Court no evidence was available on behalf of the respondent and an adjournment of a few days was allowed for that position to be remedied.  Upon the re-hearing of the matter it was accepted for the first respondent that it would undertake, as it did, to issue the share scrip to the applicant forthwith.  The only issue remaining therefore was the question of indemnity costs.

On behalf of the applicant it is contended a fair reading of the correspondence previously referred to shows the applicant was invited to bring the matter to court to obtain a resolution.  This, it is submitted, was unreasonable given the explanation of law as well as the explanation of fact given on behalf of the applicant directed to removing the first respondent's concerns.

For the first respondent it is said there was a proper basis for it having genuine concern.  When it required proof none had been provided and no further evidence had been forthcoming until the application to the Court.  It was not a case that the application had been brought on by invitation.  Production of proof to the first respondent would have solved the matter.  The application was not necessary so there should be no order as to costs.

In Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401, Woodward J said:

"I believe it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success.  In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.  Such cases are, fortunately, rare.  But when they occur, the court will need to consider how it should exercise its unfettered discretion."

That dicta, of course, addresses continuance of an action by an applicant.

I do not consider I can properly draw the inference that nothing would have satisfied the first respondent except a declaration of the Court.  It is problematical what effect the evidence brought by the applicant of the source of the funds to the Court would have had if earlier presented to the first respondent.

Nor am I able to conclude the first respondent invited the applicant to bring the action as the only means of resolving the impasse.  Certainly the correspondence gets close to that point but in my view falls short of supporting a finding to that effect.

It is the case that the applicant made known its views on the law to the solicitors for the first respondent which were unanswered.  However, there is no evidence from which it could be properly concluded there was a "wilful" disregard of the clearly established law.

In my opinion, this is not a case where indemnity costs are appropriate.   This is not a case where there is some special or unusual feature to justify the Court exercising its discretion: Preston v Preston [1982] 1 All ER 41 at 58, cited in Australian Transport Insurance Pty v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288.

However, it certainly is a case where it cannot be concluded the application was not necessary.  Such an application was clearly always proffered as one means of resolving the dispute from the viewpoint of the first respondent.

It follows I consider the application for indemnity costs should be refused but there should be an order that the costs of the applicant be paid by the first respondent.

An order should also be made dismissing the application upon notification to Court by the applicant of compliance by the first respondent with its undertaking given to the Court relating to the issue and dispatch of the share scrip.

I certify that this and the preceding [  ] pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date:

APPEARANCES

Counsel for the Applicant:                 Mr P Jooste

Solicitors for the Applicant:               Pynt & Co

Counsel for the Respondent:             Ms A Robertson

Solicitors for the Respondent:           MacKinlay & Co

Date of Hearing:  12 and 17 July 1996

Date of Judgment:  19 July 1996