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

1. 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.

2. 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 invalid and void;

   (b)an order that the share register of the First Defendant be amended to reflect the declarations in par (a) above;

   (c)declarations regarding the conduct of the Annual General Meeting of the First Defendant held on 29 October 2004 that:

   (i)the appointments of Mr Paul Cutler as a corporate representative of:

   (1)Atkinson Cooper Securities; and

   (2)Garde Nominees Limited

   ('the Appointments') were valid and the rejection of the appointments by the Chair of the Meeting was invalid and void; and

   (ii)the votes of the Appointments, together constituting 5,000,000 votes should be counted as having been voted in favour of resolutions:

   (1)to appoint Robert Stanley Brown as a Director of the First Defendant;

   (2)to appoint Neil Stuart Macaulay as a director of the First Defendant; and

   (3)to appoint Richard John Thomas as a director of the First Defendant

   and against resolutions:

   (4)to appoint Nigel Charles Purves as a director of the First Defendant; and

   (5)to appoint John Hilton Garrett as a director of the First Defendant;

   such that those resolutions were passed and not passed as indicated by 20,673,333 votes in favour and 18,540,000 against.

   (d)A declaration that the following resolutions were passed at the Extraordinary General Meeting of the First Defendant held on 2 November 2004 with effect from that time namely 9.15am WST:

   (i)Leon Phillip Carr be removed as a director of the First Defendant;

   (ii)Nigel Charles Purves be removed as a director of the First Defendant;

   (iii)John Hilton Garrett be removed as a director of the First Defendant;

   (iv)Robert Stanley Brown be appointed as a director of the First Defendant;

   (v)Neil Stuart Macaulay be appointed as a director of the First Defendant; and

   (vi)Richard John Thomas be appointed as a director of the First Defendant."

3. When the matter came on for trial there was no opposition to the plaintiffs' case.  This occurred in the following circumstances.  In the week before the commencement of the trial an Administrator was appointed to the first defendant.  However, Le Miere J gave the plaintiffs leave to continue the proceedings against the first defendant.  On the morning of the trial, counsel for the plaintiffs handed me a letter from the Administrator advising that there would be no representation of the first defendant at the trial.

4. Also, at the commencement of the trial, counsel for the second defendant handed me a consent order seeking the court's leave to withdraw it defence.  I granted that leave.  Counsel for the second defendant, however, reserved her right to make submissions in relation to the question of costs.

5. Counsel for the plaintiffs tendered a bundle of documents and the affidavits of Angela Mary Dent dated 21 March 2005, Allan John Mcleish dated 15 March 2005, Christopher David Ian Gordon dated 15 March 2005, and Peter Sarich dated 15 March 2005.  Counsel also relied on the following affidavits on the Court file:

   Paul George Cutler, sworn 1 November 2004
   Nigel Charles Purves, sworn 1 December 2004
   Nigel Charles Purves, sworn 16 December 2005
   Leon Phillip Carr, sworn 16 February 2005
   Kevin Lee Christensen, sworn 14 March 2005; and

   Angela Mary Dent, sworn 15 March 2005

6. The trial ended on 21 March 2005.  At the conclusion of the trial I was advised that there were urgent commercial decisions which had to be made which depended upon the ruling in this case.  I reserved my judgment until the next day.  I then made declarations in the terms of pars (a), (b) and (d) of the plaintiffs' statement of claim and made a declaration in a modified form in respect of par (c) of the plaintiffs' statement of claim.  I said that I would deliver my reasons in due course and I invited the parties to make written submissions in relation to the question of costs.  These are my reasons for making the declarations and I will also deal with the question of costs.

7. Each of the plaintiffs is a shareholder and member of the first defendant.  The oppression alleged is that the affairs of the first defendant since September 2004 have been conducted in a manner so as to deny the majority of the members their right to change the composition of the board of directors of the first defendant.

8. It is first necessary to say something about the first defendant.  The largest shareholder is Happle Pty Ltd which holds 11,600,000 shares.  The second largest shareholder is Lawson Resources Ltd, a company associated with Mr Leon Carr, which holds 6,940,000 shares.

9. The third‑named plaintiff, Osson Pty Ltd, holds 5,200,000 shares.  The second‑named plaintiff, Garde Nominees Ltd, holds 2,000,000 shares and the first‑named plaintiff, Western Ventures Pty Ltd, holds 21,680 shares.  In October 2004 the Board of Directors of the first defendant comprised Mr Leon Carr, Mr Nigel Purves, Mr Richard Thomas and Mr John Garrett.  The main allegations made by the plaintiffs in the statement of claim relate to events which occurred during the period leading up to the holding of the Annual General Meeting of the first defendant and ending on 3 November 2004 with the holding of an Extraordinary General Meeting of the first defendant on that day.  The Annual General Meeting was due to be held on 14 October 2004 but was postponed until 29 October 2004.

10. At all material times, the plaintiffs wanted to remove Messrs Carr, Purves and Garrett from their position as directors on the Board of the first defendant and replace them with Mr Robert Stanley Brown, Mr Neil Stuart Macaulay and Mr Richard Thomas.

11. At each of these two meetings the plaintiffs failed in their attempts to replace the Board with the persons to whom I have referred.

12. In summary, the plaintiffs allege that at the Annual General Meeting, the Chairman of the meeting, Mr Leon Carr, improperly refused to count the votes cast by the plaintiffs against the re‑election of Messrs Purves and Garrett and in favour of motions for the election of the rival candidates by unlawfully rejecting forms evidencing the appointment of Mr Paul George Cutler as corporate representative of the second‑named plaintiff and Atkinson Cooper Securities Ltd, and the proxy forms of the second‑named plaintiff and of Atkinson Cooper Securities Ltd.  The plaintiffs allege that the rejection of the documents by Mr Carr was carried out for an improper purpose of seeking to defeat at the Annual General Meeting the wishes of the majority of the shareholders that Messrs Carr, Purves and Garrett be removed as directors and that Messrs Brown, Macaulay and Thomas be appointed as directors.

13. The plaintiffs then allege that the directors of the first defendant acted improperly in issuing an additional 7,000,000 in the first defendant to the second defendant for the purpose of permitting those shares to be voted at the Extraordinary General Meeting of the first defendant held on 3 November 2004.

14. In general, the plaintiffs allege that the affairs of the first defendant have been conducted in a manner which is oppressive in that the directors of the first defendant have unlawfully resorted to stratagems designed to secure their incumbency as directors and to frustrate the will of the majority that wish to remove Messrs Carr, Purves and Garrett.

15. I now consider each of the incidents in respect of which complaint is made.  I deal firstly with the allegations that there was a wrongful rejection of the proxy and corporate representative appointment forms executed by the second‑named plaintiff and Atkinson Cooper Securities Ltd at the postponed Annual General Meeting of the first defendant with was held on 29 October 2004.  The combined votes of these two shareholders was 5,000,000 votes.

16. There were two categories of motions which were moved at the Annual General Meeting.  Firstly, there were motions for the election of Mr Nigel Purves, Mr John Garret and Mr Richard Thomas as directors of the first defendant.  Subsequently motions were moved from the floor by Mr Paul Cutler as corporate representative for a number of shareholders for the election of two further directors, namely Messrs Brown and Macaulay.

17. I deal firstly with the circumstances relating to the motions for the election of Messrs Purves, Garrett and Thomas.  In respect of those motions, the Chairman, Mr Carr, rejected the proxies and the appointment of corporate representative forms for Atkinson Coopers Securities Ltd and the second‑named plaintiff.  In respect of the motions for the election of each of Messrs Purves, Garrett and Thomas, Mr Carr declared that there were 18,540,000 votes in favour of the re‑election of each of the said directors and 15,673,633 votes against his election.  This result did not take into account the 5,000,000 votes of the second‑named plaintiff and Atkinson Cooper Securities Ltd.

18. In respect of each of the motions which was moved from the floor for the election of the further directors, being Messrs Brown and Macaulay, Mr Carr declared that the result was 18,540,000 votes against the appointment of these persons and 8,707,773 in favour.  This also excludes the 5,000,000 votes of the second‑named plaintiff and Atkinson Cooper Securities Ltd.

19. At the Extraordinary General Meeting of the first defendant which was held on 3 November 2004 resolutions to be considered by the meeting were for the removal of each of Mr Carr, Mr Purves and Mr Garrett as a director of the first defendant and the appointment of each of Mr Brown, Mr Macaulay and Mr Thomas as a director of the Company.

20. At the Extraordinary General Meeting of the first defendant of 3 November 2004, Mr Carr was again Chairman of the meeting.  On this occasion, however, Mr Carr accepted as valid the documents appointing proxies and/or corporate representatives which were essentially executed in the same way as the documents which had been rejected as invalid at the Annual General Meeting.  However, Mr Carr declared that there were 25,540,000 votes against each of the resolutions for the removal of the directors and 19,957,733 votes in favour of the resolutions and that the vote was the same in respect of each of the resolutions to appoint Messrs Brown, Macaulay and Thomas.

21. Mr Carr announced at the Extraordinary General Meeting that he had included amongst the votes cast against the resolutions 7,000,000 votes by the second defendant.  Mr Carr announced at the Extraordinary General Meeting when queried, that the first defendant had issued an additional 7,000,000 shares to the second defendant for the purposes of raising working capital.

22. The plaintiffs allege that the issue of the shares to the second defendant was invalid in that the power of the directors to issue shares was not used for a proper purpose but for the purpose of defeating the motion for the removal of the incumbent directors.

23. I turn now to consider the conduct of the affairs of the first defendant at the Annual General Meeting. The ground upon which the first defendant relies for refusing to accept the authorised representative form in respect of the second‑named plaintiff, is that under the law of Hong Kong a company must execute documents under seal and the document appointing Mr Cutler had not been executed under seal.  However, the plaintiffs have led the expert evidence of Christopher David Ian Gordon who is a practising Hong Kong solicitor.  He deposes to the fact that under Article 86 of its articles it is not necessary for the second‑named plaintiff to use a seal to appoint an attorney.  Accordingly, on the application of that view, the appointment by the second‑named plaintiff of Mr Cutler as corporate representative was not invalid.

24. I note, however, that Mr Gordon does not opine in relation to the execution by a Hong Kong company of a proxy form and I therefore do not hold that the proxy form of the second‑named plaintiff was validly executed according to Hong Kong law.

25. I now turn to the rejection by Mr Carr of the proxy form and appointment of a corporate representative form by Atkinson Cooper Securities Ltd.  In relation to the proxy form it is alleged that the proxy, which was received on 14 October 2004 was received too late.  In relation to the appointment of Mr Cutler as a representative of Atkinson Cooper it is said that the document was not under seal.

26. As to the proxy, s 250B(2) of the Corporations Act provides that:

    "(a)if a meeting of a company's members has been adjourned, an appointment and any authority received by the company at least 48 hours before the resumption of the meeting are effective for the resumed part of the meeting.  ...  "

    This section applies to the proxy form of Atkinson Cooper Securities Ltd and therefore the rejection by Mr Carr of the proxy was contrary to that provision of the Corporations Act.

27. As to the allegation that the form authorising the appointment of Mr Cutler as corporate representative was not executed under seal, this does not accord with the evidence.  An examination of the form reveals that it has been executed under seal.

28. I also reject the plea in the particulars of the first defendant's defence that the first defendant did not have sufficient time to check whether these documents were properly executed.  The second‑named plaintiff and solicitors on behalf of the second‑named plaintiff, put the first defendant on enquiry by asking the first defendant to advise if it had any objections to the form of the documents.  The first of these letters was written on 21 October 2004.

29. In the case of Link Agricultural Pty Ltd v Shanahan & Ors [1999] 1 VR 466 Kenny JA said that the validity of a chairman's ruling depends whether he had facilitated the purpose of the power pursuant to which it was made. At 480, the learned Judge stated that:

    "The purpose of the powers conferred upon the chairman with respect to the conduct of the polls was to facilitate the voting and counting of the votes upon the relevant resolutions in order that the will of the majority of members, eligible to vote and voting should be reliably ascertained."

30. In assessing whether the Chairman at the Annual General Meeting exercised his powers to reject the votes of the second‑named plaintiff and Atkinson Cooper Securities Ltd for a proper purpose, I take into account the fact that at the meeting of 3 November when, by a different stratagem, the incumbent directors had secured a majority of the votes, the Chairman did not object to the proxy and authorised representative documents executed in essentially the same form by the second‑named plaintiff and Atkinson Cooper Securities Ltd.  I, accordingly, infer that the purpose for excluding those documents and the attendant votes at the earlier meeting when there was no basis for their exclusion at law was to ensure the passage of the motions which appointed the incumbent directors as directors of the first defendant.

31. I accordingly hold that those rulings of the Chairman were invalid and that the votes of the second‑named plaintiff and Atkinson Cooper Securities Ltd should have been counted against the resolution to appoint Nigel Charles Purves as a director of the first defendant and the resolution to appoint John Hilton Garrett as a director of the first defendant (Link Agricultural Pty Ltd (supra) at 483).

32. The votes should also have been counted in favour of the resolution which was moved from the floor for the appointment of Mr Brown and Mr Macaulay as the additional directors, but by reason of the fact that, even had the 5,000,000 votes been counted, the resolution for their appointment at the Annual General Meeting would still not have been carried.

33. I now turn to deal with the question of the issue of the 7,000,000 shares in the first defendant to the second defendant.

34. A Minute dated 29 October 2004 of a meeting of directors of the first defendant records that it was resolved that the first defendant forthwith proceed to the allotment of 7,000,000 shares to the second defendant at 5 cents per share.  Present at the meeting were Messrs Carr, Purves and Garrett.

35. The documentary evidence before the court shows that the second defendant did not issue a cheque for the payment of the shares on 29 October 2004.  It appears from the cheque butts in the second defendant's cheque book that the cheque purportedly dated 29 October 2004 would have been written on or after 5 November 2004 because the number of the cheque (No 1394) appears in sequence after the cheque butts dated 5 November 2004.  Further, the evidence shows that the cheque was never in fact deposited.

36. Thus, insofar, as it was said by Mr Carr that there was a need for the first defendant on 29 October 2004 to allot the 7,000,000 shares to raise working capital, and that those shares were to be issued "forthwith", that position is substantially undermined by the fact that the cheque was never deposited by the first defendant.

37. In my view, the combination of the fact that the cheque was never deposited and the timing of the resolution lead me to infer that the directors acted for the improper purpose of issuing shares to the second defendant for the purpose of procuring that there would be 7,000,000 votes available to be voted in favour of securing the incumbency of the current board of directors at the forthcoming Extraordinary General Meeting in that, but for that purpose the power to issue the shares would not have been exercised (Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294). In this regard, I note that the signature on the cheque of the second defendant is the signature of Mr Nigel Purves, a director of the second defendant, who was also an incumbent director of the first defendant.

1. I find further that the purported issue of the 7,000,000 shares was an improper exercise of power of part of the directors in breach of their fiduciary duty and that the issue of the shares was invalid.

2. I also find that the 7,000,000 votes that were cast by the second defendant at the Extraordinary General Meeting ought not to have been counted, with the consequence that the resolutions for the removal of each of Mr Carr, Mr Purves and Mr Garrett were passed and the resolutions appointing Mr Brown, Mr Macaulay and Mr Thomas were passed.

3. For the reasons set out above, I find that during October and November 2004 the directors of the first defendant engaged in conduct with the object of precluding the members of the company from determining the composition of the board of directors, in accordance with the will of the majority and that the affairs of the first defendant were accordingly conducted in an oppressive manner. On the basis of that finding and my previous findings, I was at liberty to make orders under s 233 of the Corporations Act that a made.

4. I now deal with the question of costs.

5. The plaintiffs seek orders that Mr Carr, Mr Purves and Mr Garrett and the second defendant jointly and severally pay the plaintiffs' costs of the action to be taxed on an indemnity basis, including all costs reserved.  The plaintiffs also seek orders that the plaintiffs have liberty to apply for further orders for costs generally and, in particular (subject to giving 14 days notice in writing) to seek cost orders against Messrs Christensen Vaughan.

6. There is no doubt that the court has jurisdiction to make an award of costs against a non‑party (HPM Pty Ltd v Fear [2002] WASCA 249).

7. In the HPM Pty Ltd case, the Full Court approved a category of circumstances where courts have awarded costs against a non‑party.  These circumstances were enumerated by Balcombe LJ in the case of Symphony Group plc v Hodgson [1994] QB 179, 191 ‑ 192.

8. In my view, the circumstances in this case are such as would fall within the category of cases in which a court would consider exercising its discretion in favour of granting costs against a non‑party.  Prior to the appointment of the Administrator, the first defendant was under the control of the three directors against whom costs orders are sought on a personal basis.  One or more of these directors would have caused the first defendant to continue to defend the proceedings which were directed at preserving their own position as incumbent directors.  This, in my view, would ordinarily be a paradigm case for the award of costs against a non‑party.

9. However, in the case of Symphony Group plc v Hodgson, to which I have referred above, at 192 and 193, Balcombe LJ laid down some principles for guidance of judges at first instance when they are called upon to make an order for costs against a non‑party. He said:

   "In my judgment the following are material considerations to be taken into account, although I do not suggest that there may not be others which are relevant.

   1.An order for the payment of costs by a non‑party will always be exceptional; see per Lord Goff in Aiden Shipping Co Ltd v Interbok Ltd [1986] AC 965, 980f. The judge should treat any application for such an order with considerable caution.

   2.It will be even more exceptional for an order for the payment of costs to be made against a non‑party, where the applicant has a cause of action against the non‑party and could have joined him as a party to the original proceedings.  Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of issues by pleadings, discovery of documents and the opportunity to pay into court or make a Calderbank offer; and the knowledge of what the issues are before giving evidence.

   3.Even if the applicant can provide a good reason for not joining the non‑party against whom he has a valid cause of action, he should warn the non‑party at the earliest opportunity of the possibility that he may seek to apply for costs against him.  At the very least this will give the non‑party an opportunity to apply to be joined as a party to the action under Ord. 15, r. 6(2)(b)(i) or (ii).

   Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice."

10. 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]).

11. 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.

12. 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.

13. 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.

14. 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.

15. Accordingly, in my view, after weighing up all of the considerations in the exercise of my discretion I decline to order costs against the non‑parties personally.

16. As to the question of costs against the second defendant, the plaintiffs argue that the costs should be awarded on an indemnity basis.

17. The foundation of the plaintiffs' argument is that the second defendant has persisted until the morning of the trial in maintaining a defence where the party should have known that there was no chance of success.  This caused the incurring of unnecessary costs.

18. The second defendant was joined as a party to these proceedings from 5 November 2004.  Accordingly, the position of the second defendant is quite different to that of the non‑parties.  The second defendant had the opportunity to participate in the trial and influence the outcome, but chose not to do so.

19. The second defendant maintained its defence until the morning of the trial, when it withdrew it defence.  The second defendant argues that it was the conduct of the first defendant through its officers, namely the directors, that was the focus of the action and that it was only joined so as to be bound by any orders which the court made.  It therefore argues that no order for costs should be made against it, alternatively, that it only be obliged to pay between 10 to 20 per cent of the plaintiffs' costs on a party and party basis that have been incurred since 5 November 2004.

20. It is true that in framing the action as a claim pursuant to s 232 of the Corporations Act, the focus of the action was directed towards the first defendant and its officers.  However, the second defendant was complicit with the conduct of the directors in subscribing for the shares the subject of the improper exercise of power by the directors, and more particularly, in voting those shares at the Extraordinary General Meeting against a resolution when it must have known through its then director Mr Purves, that the voting of those shares would defeat the will of the majority of the first defendant.  Accordingly, in my view, had the second defendant at an early stage of the proceedings withdrawn its defence the likely consequence would have been a recognition that the voting of the 7,000,000 shares was invalid and with the further consequence that the resolutions could no longer stand.

21. I therefore reject the proposition that the role of the second defendant in the proceedings was peripheral.  Whilst it may have been the case that during the conduct of the interlocutory proceedings, the second defendant played a peripheral role, it is the conduct of the second defendant in voting the 7,000,000 shares which goes to the heart of the case.  In my view, in persisting with a defence until the morning of the trial the second defendant has been instrumental in prolonging the proceedings and should pay costs on an indemnity basis.

22. I accordingly find that the second defendant should pay the costs of the plaintiffs from 5 November 2004 on an indemnity basis.

23. The plaintiffs also seek liberty to apply in relation to costs orders against Messrs Christensen Vaughan.  Messrs Christensen Vaughan have not been heard in relation to this matter and therefore I do not intend to make any orders specifically against them.  However, I do give the plaintiffs leave to apply generally in relation to costs and in the event that it wishes to obtain any order specifically in respect of Messrs Christensen Vaughan they would have to make an application in respect of which notice is given to Messrs Christensen Vaughan.