Tran v Maurice Srour and Minh Tran Pty Ltd & Ors No. Scgrg-99-1210

[2000] SASC 338

TRAN  V  MAURICE SROUR AND MINH TRAN PTY LTD AND ORS

[2000] SASC 338

1................ JUDGE BURLEY......... The parties have compromised these proceedings apart from the question of costs.  These reasons relate to their respective applications for costs.

1. The plaintiff and the second defendant are both pharmacists and conducted a pharmacy business through the first defendant at 84 King William Road, Hyde Park. They were both directors of the first defendant. The plaintiff held just under 50 per cent of the shares in the first defendant and the second and third defendants between them held just over 50 per cent of the shares in the first defendant. The plaintiff and the second defendant fell out in the management of the business. On 12 October last year the plaintiff commenced these proceedings seeking various orders under the provisions of Section 246AA of the Corporations Law. Those provisions have since been superseded but were operative at the time of the commencement of proceedings.

2. Section 246AA empowers the Court to make various orders in cases of oppression occurring in the management of a company. One of the orders sought by the plaintiff in his summons was an interim order for the appointment of joint receivers and managers of the property of the company. It is apparent from his affidavit supporting the summons that he was concerned that the second defendant was wrongfully excluding him from the operation of the business and that it was therefore necessary to have an independent person take over the operation of the business pending the resolution of the disputes which had arisen between the plaintiff and the second defendant.

3. At the time of the issue of the summons the plaintiff also filed an application seeking interim relief just referred to.  It was made returnable before the Chief Justice on 15 October 1999, there then followed several adjournments in the Judges’ chamber list, until finally on 14 January 2000 the application was referred to me by Perry J.  Having heard counsel’s brief submissions on 14 January 2000, I made the following note of the submissions that had been put:

   “The plaintiff wishes to extract himself from the running of the business the subject of these proceedings and has invoked certain provisions of the Corporations Law. It may be necessary for the ptf to consider, in light of recent events in relation to these proceedings, seeking different relief under different provisions of the law leading ultimately to a request for an order that the second defendant or his nominee purchase the ptf’s shareholding at an agreed price or at a price to be fixed by the Court. I have indicated to the parties who are present today that I have only limited knowledge of this matter and that the tentative suggestions that I have made relating to the direction that this action may take may have to be reviewed when I am more familiar with the matters in dispute. It is probably simplistic to say that the essential dispute is one of valuation of shares but nevertheless that is I think a helpful way to describe the principal dispute between the parties. In using the word “dispute” I take into account that on the defendants’ case the plaintiff has been criticized for not taking the opportunity to invoke provisions in articles of the company to have the share transaction effected.

   The plaintiff wishes to proceed to trial as quickly as possible.  At present that is on the basis that the only issue at trial will be the acquisition of the plaintiff’s shares by the defendant at an appropriate price.  The ptf does not presently contemplate pursuing any interlocutory application but that statement needs to be looked at in light of the progress of the action and the progress of negotiations between the parties.  The defendant wants a statement of claim to be filed before any decisions are taken as to how the action is to progress.  I propose to give directions for the filing and service of pleadings and once a statement of claim and defence has been filed, I will bring the matter on for a further directions hearing.

   I have indicated to the parties that either mediation with a suitably qualified person experienced in valuing shares of this nature, or the appointment by agreement of the parties of such a person to value the shares in a manner binding upon the parties, are two methods of resolving the matter without resorting to expensive litigation.  I urge the parties to consider these methods of resolution very seriously.  I indicate that the parties may seek a conciliation conference before me if it is thought that that will assist with the resolution of the disputes between them.  If the matter comes to trial of a limited or extended nature, I will endeavour to have the matter brought on for trial as quickly as possible.”

4. It is common ground between the parties that after that date the parties negotiated with regard to the buy-out by the second defendant of the plaintiff’s shareholding in the first defendant.  The parties have settled the matter in its entirety but for the question of the costs of action including, in particular, the costs relating to the plaintiff’s application for the appointment of receivers and managers.

5. The parties accept that the Court will not either try the action or hear and determine the application merely for the purposes of deciding costs: Tobin v Tobin and Anor (1977) 75 LSJS 9. Even if the Court were prepared to do so, the parties have specifically refrained from asking the Court to embark upon such a course. Consequently, if I am able to proceed to a fair determination in relation to the costs of action and the costs of the application for the appointment of receivers and managers, I can only do so by reference to uncontentious material and only if that material is sufficient to enable me to adjudicate fairly on the dispute.

6. The plaintiff seeks his costs of action up to and including 20 July 2000, together with the costs of this application.  The second and third defendants seek their costs of the proceedings, including the costs of this application.  In addition, in respect of the application for the appointment of receivers and managers, they seek costs on an indemnity basis up to and including 14 January 2000.

7. Where costs have been reserved since the commencement of the proceedings, each party seeks those costs apart from costs which were reserved on 21 July 2000 in respect of which none of the parties seeks any order.

8. As far as I can see from the record of the proceedings, the only costs reserved have been in relation to an application by Document 27, which was the defendants’ application seeking to have the plaintiff’s claim struck out.  That aspect of the parties’ respective claims for costs may be dealt with briefly.  In the events which have occurred it is not possible for me to determine how that application would have been decided and, in my view, the costs of that application must lie where they fall.

9. The next category of costs which needs to be considered is the costs of action.  The nature of the action pursued by the plaintiff is set out in the summons and the statement of claim.  In essence, the relief sought in the summons had the effect of, if it had been granted, restoring the plaintiff to the running of the business.  It was not until the plaintiff filed a statement of claim on 21 January 2000 that the plaintiff changed the nature of the proceedings to claim an order that his shares be purchased by Mr Srour.  Initially, he claimed that the full value of his shares was $214,869.00.  By an amendment, leave for which was granted on 8 June 2000, he altered that sum to $118,000.00.  The parties subsequently settled on the basis that the plaintiff’s shares would be purchased for the sum of $118,000.00.

10. I have emphasised earlier in these reasons that I may only proceed to a determination of the various costs questions which have been raised by reference to the uncontentious material before me and then only if that material is sufficient to enable a fair adjudication.  Having considered the submissions, both oral and written of both of the parties, much of what they have advanced in favour of the respective positions taken by their clients would, if I took it into account, require me to assess the strength of highly contentious material.  The affidavits filed by the parties are voluminous and may fairly be described as assertion followed by counter-assertion.  There is very little common ground between the parties.  When taking the costs of action as a whole, it is impossible for me to determine what is a fair exercise of the discretion as to costs in relation to the action generally because I do not know where the respective merits of the parties’ case lie.  Consequently, neither the plaintiff nor the second and third defendants can succeed in its claim for the costs of action.

11. I turn now to a consideration of the costs of the application for the appointment of receivers and managers.  This application was pursued by the plaintiff from the outset and only abandoned in mid-January 2000 after a number of directions had been given by various members of the Court relating to the filing of affidavits and the setting down of the matter for hearing.  I put to one side for the moment that the second and third defendants seek those costs on an indemnity basis.  I am faced with a situation where the plaintiff pursued an application from 12 October 1999 to 14 January 2000.  At about that time the plaintiff decided not to pursue a claim for orders which, if they were made, would reinstate him.  Instead, he sought to be bought out by the second and third defendants.  It seems to me that what has occurred is a withdrawal by the plaintiff of his interlocutory application seeking the appointment pending trial of receivers and managers.  In those circumstances, I think that the second and third defendants are entitled to the costs of the application.

12. As to whether or not those costs should be on an indemnity basis, the case law is clear that such costs should only be awarded if there was virtually no prospect of success in relation to the bringing of the application: Colgate-Palmolive Co and Anor v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248. In the absence of determining the application itself, I have no means of knowing whether or not the plaintiff might have been successful on his application for the appointment of receivers and managers. The mere fact that he changed his mind about pursuing it does not mean that there was never any merit to the application. In those circumstances, it has not been established by the second and third defendants that this is a case where the discretion ought to be exercised so that indemnity or solicitor/client costs should be ordered.

13. For the above reasons I make the following orders:

    1...... That there be no order as to the costs of action.

    2...... That the plaintiff pay the defendants’ costs of and incidental to the application for the appointment of receivers and managers up to and including 20 July 2000.

    3...... That in respect of any reserved costs, other than in relation to the application for appointment of receivers and managers, there be no order as to costs.

    4...... That the second and third defendants’ application that certain costs be taxed on a solicitor/client basis be refused.

14. I will hear counsel as to the costs of this application.