Sipad Holding ddpo v Nikola Popovic
[1995] FCA 1140
•22 DECEMBER 1995
CATCHWORDS
Practice and procedure - whether proceedings against second respondent should be dismissed - significant amendments made to application during final hearing - second respondent not present or represented at final hearing - no notice of amendments - whether orders sought should be granted in the circumstances - whether appropriate in the circumstances to grant relief sought by a director suing in his own right against a person who claims to be a director but is not.
Costs - whether successful party entitled to an order for costs - whether appropriate to exercise discretion to make a different order - significant amendments made to the application during the final hearing - several questions as to whether proceedings properly constituted and as to whether respondents were proper parties - relief granted substantially different from that initially claimed and principally to a party which until the last day of the hearing was not an applicant.
Federal Court of Australia Act 1976 s 43(1)
Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 48,134 applied
Morgan v Morgan Insurance Brokers Ltd [1993] BCC 145 applied
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211 applied
Ritter v Godfrey [1920] 2 KB 47 applied
Mitropoulos v The Greek Orthodox Church and Community of Marrickville and District Ltd (1993) 10 ACSR 134 at 139 applied
Jones v North Australian Aboriginal Legal Aid Service Inc (1986) 82 FLR 264 at 265 applied
SIPAD HOLDING d.d.p.o. & Anor v NIKOLA POPOVIC & Ors
NG 3192 of 1995
CORAM: Lehane J
PLACE: Sydney
DATE: 22 December 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG3192 of 1995
GENERAL DIVISION )
IN THE MATTER OF
SIDEX AUSTRALIA PTY LIMITED
(A.C.N. 000 828 606)
BETWEEN:SIPAD HOLDING d.d.p.o.
First Applicant
PERO VLADIC
Second Applicant
AND:NIKOLA POPOVIC
First Respondent
DRAGAN KARAC
Second Respondent
MILAN JOVICIC
Third Respondent
JOSEPH JOHN GILLES
Fourth Respondent
AUSTRALIA FURNITURE PTY LIMITED
Fifth Respondent
SIDEX AUSTRALIA PTY LIMITED
Sixth Respondent
SIPAD EXPORT IMPORT d.d.p.o.
Seventh Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 22 December 1995
MINUTE OF ORDERS
THE COURT:
ORDERS that the orders of the Court made on 3 November 1995, in terms of the short minutes handed up on that day, be set aside.
ORDERS that the claims of the applicants against the second respondent in paragraphs 1A, 1B, 1C, 1D and 1 of the further amended application be dismissed.
Subject to Order 2:
(a)DECLARES that the first applicant, Sipad Holding d.d.p.o., is a member of the sixth respondent, Sidex Australia Limited, and is the holder of 1,983,251 shares in the sixth respondent.
(b)ORDERS pursuant to section 212 of the Corporations Law that the register of members of the sixth respondent be rectified by amending the name "Sour Sipad Import Export" to "Sipad Holding d.d.p.o.".
(c)DECLARES that the resolutions passed at a general meeting of the members of the sixth respondent held on 26 April 1995 are valid and effective.
ORDERS that, except as to the costs the subject of the order of the Court made on 12 December 1995, there be no order as to costs including reserved costs.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG3192 of 1995
GENERAL DIVISION )
IN THE MATTER OF
SIDEX AUSTRALIA PTY LIMITED
(A.C.N. 000 828 606)
BETWEEN:SIPAD HOLDING d.d.p.o.
First Applicant
PERO VLADIC
Second Applicant
AND:NIKOLA POPOVIC
First Respondent
DRAGAN KARAC
Second Respondent
MILAN JOVICIC
Third Respondent
JOSEPH JOHN GILLES
Fourth Respondent
AUSTRALIA FURNITURE PTY LIMITED
Fifth Respondent
SIDEX AUSTRALIA PTY LIMITED
Sixth Respondent
SIPAD EXPORT IMPORT d.d.p.o.
Seventh Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 22 December 1995
REASONS FOR JUDGMENT
LEHANE J: The principal issues in these proceedings were dealt with in a judgment which I delivered on 1 November 1995. On 3 November I made certain orders intended to give effect, in substantial part, to my reasons for judgment. Those orders have not, however, been entered. They do not in any event deal with two matters canvassed in my reasons for judgment, on one of which I expressed a firm conclusion and on the other a tentative view. Those matters are, respectively, the disposal of the
proceedings as between the applicants and the second respondent and the question of costs. As to the former, I expressed the view that the proceedings ought to be dismissed as against the second respondent. As to the latter, I expressed a tentative view that, in the unusual circumstances of the case, the ordinary consequences of the applicants' success on the main issues might not necessarily be appropriate and a belief that no one took serious issue with that view. That belief proved to be unfounded, and I have, since delivering judgment, heard argument on both matters.
Background and nature of proceedings
Both matters require, for their decision, an understanding of the somewhat unusual course of these proceedings.
The proceedings were commenced by an application filed on 26 April 1995 by Sidex Australia Pty Limited, now the sixth respondent. I shall refer to it as "Sidex". The respondents to that application were the first three respondents. The application sought a declaration that certain special resolutions purportedly passed by Sidex were valid and enforceable and orders that the first respondent had engaged in conduct that constituted a contravention of the Corporations Law and the second and third respondents in conduct that would constitute aiding, abetting, counselling or procuring a person to contravene the Corporations Law. Interlocutory relief was sought also, including orders that the respondents vacate premises of Sidex, that they deliver up property of Sidex and that they be restrained from dealing with property of Sidex.
The immediate significance of the purported special resolutions was that they paved the way for certain ordinary resolutions which were passed also, the effect of which was, if they were valid, to remove the first three respondents from office as directors of Sidex. The basis of the claims for interlocutory relief must have been, at least in part, that those respondents were effectively removed from office. But the validity of the purported special resolutions depended, in turn, on the presence at the general meeting of persons effectively representing the shareholders, particularly the majority shareholder. The register of members of Sidex stated that the holder of the majority of its issued shares was "Sour Sipad Import Export". The body which appointed representatives and proxies to represent it at the general meeting was a body described as Sipad Holding d.d.p.o. (to which I shall refer as "Sipad Holding"), now the first applicant.
It was always, I believe, common ground that there was never a body the correct name of which was "Sour Sipad Import Export". The first three respondents, however, resisted demands that they vacate Sidex's premises, and hand over its property, on the ground that they had not been effectively dismissed as directors because the resolutions were not validly passed because, in turn, the body which was represented at the meeting as the holder of the majority of the issued shares in Sidex was not in fact the holder of those shares or entitled to be their holder. The first three respondents opposed the claims made against them in these proceedings on that basis and maintained an active opposition through the interlocutory stages and during the final hearing which took place in October. Thus, it became clear at an early stage that the real issue in contention was whether Sipad Holding was indeed the holder, or entitled to be the holder, of the majority of the shares in Sidex. That that was so emerges clearly from a number of the affidavits and from the applicant's statement of facts and the respondents' statement of contentions. It remained the principal issue throughout. Nevertheless, until amendments were made on the last day of the hearing, Sipad Holding was not a party to the proceedings nor was there, until the last day of the hearing, a respondent with a direct interest in opposing the claim of Sipad Holding to the majority shares.
Finally, following (I think it is fair to say) comments which I made at the beginning of the second day of the hearing, the applicants sought on the third and final day to make some significant further amendments to the application (it had been amended previously, in respects not now material, early in the interlocutory phase). Those further amendments included joining Sipad Holding as first applicant, removing Sidex as an applicant and joining it as the sixth respondent and joining also, as seventh respondent, a body known as Sipad Export Import d.d.p.o.. At the same time, further significant amendments were made to the application. In essence, the further amendments omitted the claims against the first three respondents relating to alleged breaches of the Corporations Law and sought an order that Sipad Holding was a member of Sidex, an order for rectification of the register of members and orders and declarations as to the validity of the special resolutions and also of the ordinary resolutions which purported to remove the first three respondents as directors. On that amended application the applicants were, in the end, substantially successful.
That, however, is to anticipate. There were substantial, complex and, in some respects at least, strongly contested interlocutory proceedings. It is necessary, I think, to refer to some of what happened during the interlocutory phase without, however, attempting to describe that phase exhaustively.
First, on 26 April 1995 orders were made restraining the first three respondents from operating on a number of specified bank accounts of Sidex except to meet Sidex's reasonable and ordinary business expenses. Those orders were varied on 28 April, significantly by adding a proviso that "any bank served with a copy of these orders shall be entitled to meet any cheque drawn on the accounts of [Sidex] for sums not exceeding $5,000".
Secondly, orders were made on 28 April granting the then applicant [Sidex] access to inspect and copy books and records of Sidex and directing the exchange of statements of facts relied upon. Difficulties arose in relation to the inspection of documents; the (then) applicant asserted that the respondents were tardy in complying with the court's orders and there was a good deal of correspondence between the parties, and there were also applications to the Court, as to the requirements of the orders and compliance with them.
Thirdly, in accordance with leave granted on 11 May 1995, Pero Vladic was joined as second applicant (which he remains). Mr Vladic was, and remains, a director of Sidex and supported the claims of Sipad Holding. Then on 19 May 1995 those acting for the respondents filed, purportedly on behalf of Sidex as cross claimant, a cross claim alleging that the second respondent had wrongly paid money belonging to Sidex. That cross claim remains to be disposed of.
Also on 19 May, the respondents sought the Court's leave to pay a sum of US$64,335 for a container of furniture then on high seas on route to Sydney. There was a dispute as to whether the goods could lawfully be imported having regard to sanctions imposed by the Commonwealth. That issue, so far as I know, was never resolved and it would be futile to attempt to resolve it now.
Fourthly, claims were made by the applicants that the respondents had acted in breach of the orders of the Court restricting dealings with bank accounts. It was those claims, apparently, which led principally to an order of 9 June 1995 by which the orders of 26 April 1995 were discharged and Michael Gregory Jones (the "receiver") was appointed receiver and manager of Sidex. The receiver then, in the course of his investigation of the affairs of Sidex, discovered that a series of payments had been made to the respondents' solicitors and applied, partly, in payment of costs and disbursements incurred in relation to the proceedings and, in substantial part, by transfer to an account controlled by the solicitors in the name of a company called Australia Furniture Pty Limited. That led to considerable correspondence between the solicitors for the receiver and the respondents' solicitors and, ultimately, to the joinder of the fourth and fifth respondents, on the application of the receiver, and the filing of a cross claim against the fourth and fifth respondents for an account. There are matters, arising from those payments, still to be dealt with in relation to the fourth
and fifth respondents and the first three respondents as well, and it is inappropriate to say more about that matter now.
I should record that the first three respondents were, until shortly before the hearing before me commenced, represented by solicitors and counsel. Shortly before the hearing the solicitors for those respondents ceased to act for them and the first respondent appeared at the hearing for himself and also, in effect, for the third respondent who was present in court. The second respondent was not present at the hearing (I was told that he was overseas on urgent private business) and was not represented. He thus had no notice of the amendments, to which I have referred, made on the last day of the hearing. Finally, I should mention that I have, since delivering judgment, made an order terminating the receiver's appointment and certain other orders consequent on that termination.
I can now deal with the matters requiring decision.
Second respondent - outcome of proceedings
As I have said, the view which I expressed in my judgment was that the application should be dismissed as against the second respondent. Such an order has not, however, yet been made and the applicants have argued that some, at least, of the orders sought should be made against the second respondent as well as the first and third respondents. It is said (and truly) that the second respondent was represented until the solicitor for the first three respondents ceased to act shortly before the hearing and had ample notice of the substantial issues between the parties. The second respondent should not, it was said, derive an advantage from his choice to be absent, and not to be represented, at the hearing. It was appropriate, it was submitted, in the circumstances that the second respondent should be bound by at least certain of the orders to be made.
But for the amendments made during the hearing it might well be that no distinction should be drawn between the second respondent on the one hand and the first and third respondents on the other. The difficulty is, however, that when the second respondent went overseas he was sued in these proceedings by Sidex and by the second applicant; and the principal relief sought by those parties, as against him, were a declaration as to the validity of certain special resolutions and an order to the effect that he had aided and abetted the first respondent in breaches of the Corporations Law. As a result of the amendments, no claim was any longer made against the second respondent by Sidex (now the sixth respondent); instead Sipad Holding (now the first applicant) and the second applicant claimed against the respondents (including the second respondent) declarations as to its entitlement to shares in Sidex, an order for rectification and various orders and declarations relating to resolutions of the members of Sidex, both special and ordinary.
I find it impossible to see that it would be appropriate to make, against the second respondent, orders in favour of an applicant of whose claims he had no notice or orders of the seeking of which he had equally no notice. In the end, I think counsel for the applicants conceded that point.
What, then, might be left? The answer is, in my view, only so much of the order as to the resolutions, in favour of the second applicant (but not the first), which declared valid and effective the special (but not the ordinary) resolutions.
I greatly doubt that it would be appropriate, in any event, to single out in that way an individual strand of the relief sought. Apart from that, however, while I appreciate that the respondents (including the second respondent) did not themselves object to the joinder of the second applicant (they may indeed have regarded that joinder in certain respects to be in their interests), the second applicant is simply an individual director of Sidex suing in his own right. I do not think a declaration should be made in favour of such an applicant, against a respondent whose only interest in the outcome of this aspect of the proceedings is that of one who claims to be (but consistently with my decision is not) a director of Sidex. Putting it in another way, what I am asked to do is to make in favour of one director of a company a declaration, binding on another person who claims to be a director, that a special resolution to amend the company's articles of association in ways that do not directly affect him (but might pave the way to other action which could affect him) is valid. I do not think it is appropriate to make such an order only as between such parties.
For those reasons I adhere to the view that the claims of the applicants against the second respondent, in paragraphs 1A, 1B, 1C, 1D and 1 of the further amended application, must be dismissed and I shall so order. That, however, does not affect any claims which the sixth respondent may have arising out of the payments to the respondents' former solicitor to which I have already referred.
Costs
This is by no means an easy question. I should begin by recording that I have already made two orders as to costs which may be relevant in the present context. First, on 12 October 1995, when granting leave to amend the application (in the ways I have already discussed) I ordered that the costs occasioned by the amendments be paid by the applicants. Secondly, on 12 December 1995 I ordered that the first three respondents pay half the costs of the sixth respondent and certain other parties of the proceedings on that day: proceedings which related principally to a claim made against Sidex by the first three respondents as former employees for which, they asserted (wrongly, as I held) that the receiver was personally liable.
Counsel referred me, while conceding the discretion for which s 43(1) of the Federal Court of Australia Act 1976 provides, to the authorities (particularly Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 48,134) which make it clear that ordinarily a successful party is entitled to an order for costs and that it is only in limited circumstances that it is an appropriate exercise of the discretion to make a different order. Counsel also referred me to Morgan v Morgan Insurance Brokers Ltd [1993] BCC 145 in which Millett J held that, while ordinarily directors are not proper defendants to a suit for rectification of a share register, it may be appropriate to join them, for the purpose of obtaining an order for costs against them, in circumstances where the need to take proceedings for rectification arose from the directors' own improper actions.
Hughes was cited with approval by the Full Court of this Court in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211; and see Ritter v Godfrey [1920] 2 KB 47, Mitropoulos v The Greek Orthodox Church and Community of Marrickville and District Ltd (1993) 10 ACSR 134 at 139 and Jones v North Australian Aboriginal Legal Aid Service Inc (1986) 82 FLR 264 at 265.
The principles are clear enough. Counsel argued that there was nothing in the circumstances of this case which should lead me to decline to apply the ordinary rule and he pointed to the course of proceedings, both at the interlocutory stage and in the final hearing, which he said reinforced his argument that the applicants should have an order for costs. He pointed out that it was always clear, as between the parties, what the real issue was, and argued that since the respondents chose (at a time when they were represented by solicitors and counsel) actively to contest the proceedings I should not now give any weight to their assertions that they were brought into the proceedings as unnecessary parties, having no interest in the principal question to be determined. Counsel also pointed to particular matters arising in the interlocutory stages which, he said, gave added strength to the argument that an order for costs ought to be made against the first three respondents.
The first respondent made two main submissions. The first (encouraged, no doubt, by comments which I made in the course of the hearing) was to the effect that the first three respondents, who had no direct interest in the principal question - the question as to the identity of the body entitled to the majority of the shares in Sidex and therefore entitled to control Sidex - should not be required to pay costs incurred in having that question decided. He also referred to the very heavy burden which, he claimed, and no doubt truly, would be imposed on the first three respondents if an order for costs were made against them. Counsel for the applicants responded that, in exercising my discretion under s 43, I ought not to have regard to the financial position of the respondents or to the extent of the burden which an order for costs might impose upon them. I am not sure whether that argument is correct as a proposition of universal validity, but I am prepared to accept that the financial condition of the respondents, and the financial effect on them of an order for costs, are not matters which I should take into account in exercising my discretion in this case.
I think it is indeed relevant to the exercise of my discretion that it was clear from the outset what the main issue was and that the first three respondents, then represented by solicitors and counsel, took no steps, so far as that issue was concerned to have the action reconstituted in a more appropriate form and did not assert that they lacked any interest in the matter. Indeed, as I have said, they offered strenuous resistance. I am not otherwise inclined to give particular weight to what occurred in the interlocutory stages. Apart from the payments to the solicitors, which remain to be dealt with and as to which, if it is appropriate, separate orders can be made, I can see nothing in what happened during the interlocutory phase that should particularly influence me, in relation to costs, one way or the other. In saying that I have taken into account the affidavit material, and the applications to the court, in relation to the inspection of documents and records.
The following other matters, however, in my view are relevant:
(a)The proceedings were commenced by an application by Sidex for relief against the first three respondents personally, including particularly orders that they had committed, or participated in, breaches of the Corporations Law. In the end, Sidex obtained no relief: it was seen to be an inappropriate applicant and a proper respondent, and leave was granted to amend accordingly. No applicant proceeded, in the end (and this change did not occur until the last day of the hearing), with any claim that the first three respondents had committed, or participated in, breaches of the Corporations Law.
(b)The joinder of the second applicant had the effect that from the time when that happened there was, throughout, an applicant who maintained against the first three respondents a claim for a declaration as to the validity of the special (though not, until the last day of the hearing, the ordinary) resolutions. Two comments may be made about that. One is that, as I have already said in relation to the second respondent, one would not ordinarily conclude that a suit involving a claim by one director of a company, against other persons claiming to be directors, for declarations as to the validity of special resolutions passed at a general meeting of the company, was properly constituted. The other, however, is that, as I have already mentioned, no objection was ever taken on that score by the respondents.
(c)Certainly in relation to the declaration as to entitlement to shares and the order for rectification, the first three respondents would not ordinarily be proper parties. There is no evidence that the first three respondents were in any way responsible for the mistakes which resulted in the entries in the registrar of members taking the form they did. All they did was resist, on the basis (erroneous, as I have found) that members of Sipad Holding owned the majority shares in Sidex, relief sought against them by Sidex based on the view (which I have held to be correct) that Sipad Holding was entitled to the majority shares. This case is, I think, quite different from Morgan.
I recognise that I have the advantage, not available to the parties at the time when the proceedings were instituted, that I can survey the field of battle after hostilities have ceased and the dust has settled. The survey leaves me, however, with the clear impression that what might have been, and indeed ultimately became, a relatively straightforward inquiry as to ownership of shares in Sidex, and the right to control the composition of the board of that company, commenced as a fight on a rather different front and developed into a series of skirmishes which had little to do with the main question. I think the parties share the responsibility for that: certainly I do not think that the respondents are by any means to be absolved of a significant share of the responsibility. However that may be, and whatever the degree of substantial success the applicants may ultimately have achieved, the fact remains that relief was granted, substantially different from that initially claimed by Sidex, principally to a party which until the last day of the hearing was not an applicant (and in circumstances where arranging for its joinder, when I suggested that that should happen, apparently gave
rise to no difficulty). I think that in these very unusual circumstances I should revoke the order which I made on 12 October 1995 to the extent that it ordered that the costs occasioned by the amendments be paid by the applicants and that, subject to paragraph 10 of my orders of 12 December 1995 (which should stand), I should make no order as to costs. That, of course, does not affect the matters, which I have mentioned, which remain outstanding between the sixth respondent and the first five respondents, including any question of costs in relation to those matters.
Conclusion
As I have mentioned, the orders which I made on 3 November 1995, in the form of the short minutes handed up on that day, have not been entered. The appropriate course is, I think, to set aside those orders and instead to order as follows:
That the claims of the applicants against the second respondent in paragraphs 1A, 1B, 1C, 1D and 1 of the further amended application be dismissed.
Subject to order 1, that declarations and orders be made in terms of paragraphs 1, 2 and 3 of the short minutes of order handed up and initialled by me on 3 November 1995.
Except as to the costs the subject of the order of the Court made on 12 December 1995, no order as to costs, including reserved costs.
I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 22 December 1995
Heard: 19 December 1995
Place: Sydney
Decision: 22 December 1995
Appearances: Mr J E Sexton of counsel instructed by Mallesons Stephen Jaques appeared for the applicants.
The first and second respondents appeared in person.
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