Western Ventures Pty Ltd v Resource Equities Ltd - [2005] WASC 53

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: WESTERN VENTURES PTY LTD & ORS -v- RESOURCE EQUITIES LTD & ANOR [2005] WASC 53

CORAM: COMMISSIONER SIOPIS SC

HEARD: 21 & 22 MARCH 2005

DELIVERED : 22 MARCH 2005

PUBLISHED : 11 APRIL 2005

FILE NO/S: COR 357 of 2004

BETWEEN: WESTERN VENTURES PTY LTD (ACN 079 681 342)
GARDE NOMINEES LTD
OSSON PTY LTD (ACN 051 381 465)
Plaintiffs
AND
RESOURCE EQUITIES LTD (ACN 067 748 109)
First Defendant
COSMOS E-C COMMERCE PTY LTD (ACN 086 654 640)
Second Defendant

Catchwords:

Oppression - Issue of shares for improper purpose - Costs against non-party - Indemnity costs

Legislation:

Corporations Act, s 232, s 233

Result:

Declarations made
Costs orders against non-party refused
Indemnity costs ordered

Category: B

Representation:

Counsel:

Plaintiffs:     Mr M L Bennett
First Defendant             :     No appearance
Second Defendant         :     Ms S J Gepp

Solicitors:

Plaintiffs:     Bennett & Co
First Defendant             :     No appearance
Second Defendant         :     Deacons

Case(s) referred to in judgment(s):

Gore & Ors (t/as Clayton Utz) v Justice Corporation Pty Ltd (2002) 119 FCR 429
HPM Pty Ltd v Fear [2002] WASCA 249
Link Agricultural Pty Ltd v Shanahan & Ors [1999] 1 VR 466
Symphony Group plc v Hodgson [1994] QB 179
Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285

Case(s) also cited:

Babsari Pty Ltd v Wong [2000] QSC 380
Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359
CE Heath Underwriting Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd, unreported; SCt of Victoria; No 2662 of 1987; 1 September 1995
Colgate Palmolive v Cussons (1993) 46 FCR 225
Degman Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354
Duskwood Pty Ltd v Bellara Willows Pty Ltd [2001] WASC 281
Foundation Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 91 ALR 397
Knight v FP Special Assets Limited [1992] 174 CLR 178
Money Tree Management Services Pty Ltd v Deputy Commissioner of Taxation (No 2) [2000] SASC 63
National Justice Compania Naviera SA v Prudential Assurance Co Ltd (No 2) [2000] 1 WLR 603
North South Construction Services Pty Ltd v Construction Pacific Management Pty Ltd [2002] NSWSC 286
Penfold v Higgins [2002] NTSC 89
Re Talk Finance and Insurance Services Pty Ltd [1994] 1 Qd R 558
Yates Property Corporation Pty Ltd v Boland & Ors (No 2) (1997) 147 ALR 685

COMMISSIONER SIOPIS SC: This is an action by the plaintiffs for relief under s 233 of the Corporations Act 2001 (Cth) on the grounds that the affairs of a company in which each of the plaintiffs is a shareholder, Resource Equities Ltd (the first defendant) have been conducted in a manner which is oppressive.
The relief sought by the plaintiffs in their statement of claim was as follows:
"(a)a declaration that the purported issue of 7,000,000 shares by the First Defendant to the Second Defendant was not effective alternatively…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] WASC 53
Decision Date: 11 APRIL 2005

CaseChat Overview and Summary

In the case of Western Ventures Pty Ltd v Resource Equities Ltd, Western Ventures, the plaintiff, brought a claim against Resource Equities, the defendant, alleging oppressive conduct by the defendant's directors, including the issue of shares for an improper purpose. The case was heard in the Federal Court of Australia. The plaintiff sought relief under the Corporations Act, as well as orders for costs against the directors of the defendant, who were not parties to the proceedings, and an indemnity for those costs.

The primary legal issues before the court were whether the non-party directors could be held liable for costs and whether the plaintiff was entitled to an indemnity for those costs. The court had to consider the principles of natural justice, the discretionary nature of costs orders, and the potential for prejudice to the plaintiff if they were not granted an indemnity.

The court, in exercising its discretion, considered the guidelines set out in previous cases and the fact that the non-party directors had not been warned of the possibility of a costs order being made against them. The court determined that the non-joinder of the directors and the lack of warning prior to the trial were significant factors that impacted natural justice. It was noted that the directors, who were not parties to the litigation, had not had the opportunity to defend themselves or influence the trial outcome. The court concluded that the considerations of natural justice outweighed the potential prejudice to the plaintiff and that it would not be appropriate to grant the relief sought. The court found that the plaintiff might be out of pocket for some of their costs, but this could have been avoided if the directors had been joined or warned prior to the trial.

The court declined to make a costs order against the non-party directors and refused to grant an indemnity for costs to the plaintiff. The court held that the considerations of natural justice were paramount in this case and that reopening the merits of the case would not be productive. The court left open the possibility for the defendant company to seek recovery of the costs from the directors in separate proceedings.

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

I am mindful of the fact that these are guidelines and are not a substitute for or a fetter upon the general discretion of the court (Gore & Ors (t/as Clayton Utz) v Justice Corporation Pty Ltd (2002) 119 FCR 429 at 447). Further, I am aware that it is not essential that a party against whom a costs order is sought should be warned of the possibility that the party may claim costs against the non‑party in the event that the party to the proceedings succeeds at trial. The fact that a party may not have issued such a warning is just one of the many relevant matters that should be considered when an application for costs against a stranger to the litigation is made (see Gore at 448, HPM Pty Ltd v Fear (supra) at [9]). A major consideration in the exercise of my discretion is that the non‑parties, prior to the appointment of the Administrator, would as directors of the first defendant have used the vehicle of the first defendant to conduct the proceedings to defend their own position as directors. A further consideration is that it is prejudicial to the plaintiffs that, as shareholders of the first defendant, they should have to bear part of the costs of the first defendant that were incurred by the directors in causing it to defend these proceedings; and in addition, to the extent that they are not compensated in respect of their own costs in this action, the plaintiffs will be out of pocket in respect of their own costs in this litigation. In this case, the non‑party directors against whom costs orders are sought, were not joined as parties to this action. It was their conduct which was effectively the subject of the criticism made in respect of the conduct of the affairs of the first defendant and they could have been joined. Further, there was no warning prior to the trial that costs orders would or might be sought against the directors. There is in this case an important consideration in considering the impact of the non‑joinder and the non‑warning of the directors. It is that as a consequence of the non‑joinder and non‑warning and the subsequent appointment of the Administrator, the non‑parties have not given evidence and did not influence the outcome of the trial because the trial proceeded on an unopposed basis. That is a very weighty consideration going to natural justice. I have given some consideration to the question as to whether the proper way to proceed would be to give the non parties an opportunity to make submissions in respect of the question of costs, but have concluded that that would not be a fruitful exercise since it has the prospect of the whole of the merits in effect being reopened. I am also mindful of the fact that it would be open to the first defendant (under the control of a new board) to seek in separate proceedings to recover the costs incurred by the non‑party directors on behalf of the first defendant in defending these proceedings, from the directors personally. Accordingly, in my view, the considerations of natural justice outweigh the fact that for some of its costs, the plaintiffs may be out of pocket. Insofar as that may occur the position could have been avoided by joining or warning the directors.