FEDERAL COURT OF AUSTRALIA Rivkin Financial Services Limited (ACN 061 287 045) v Sofcom Limited (ACN 088 488 724) [2004] FCA 1783 RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) v SOFCOM LIMITED (ACN 087 482 602) & ORS N1092 OF 2004 EMMETT J 9 DECEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1092 OF 2004 BETWEEN: RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) PLAINTIFF AND: SOFCOM LIMITED (ACN 088 488 724) FIRST DEFENDANT FAST SCOUT LIMITED (ACN 088 488 724) SECOND DEFENDANT ALTERA CAPITAL LIMITED (ACN 082 541 437) THIRD DEFENDANT CROSS CLAIM: SOFCOM LIMITED (ACN 088 488 724) FIRST CROSS-CLAIMANT FAST SCOUT LIMITED (ACN 088 488 724) SECOND CROSS-CLAIMANT ALTERA CAPITAL LIMITED (ACN 082 541 437) THIRD CROSS-CLAIMANT RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) FIRST CROSS-DEFENDANT ALAN DAVIS GROUP PTY LTD (ACN 000 762 489) SECOND CROSS-DEFENDANT NETWORK LIMITED (ACN 091 780 924) THIRD CROSS-DEFENDANT COLE KABLOW SUPERANNUATION PTY LTD (ACN 082 873 541) FOURTH CROSS-DEFENDANT ALAN ANDEREW DAVIS FIFTH CROSS-DEFENDANT JUDGE: EMMETT J DATE OF ORDER: 9 DECEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Rivkin Financial Services Limited ("RFS") pay the defendants' costs of the claim. 2. The cross-claimants pay all costs reasonably incurred by RFS in defending the cross-claim other than those costs that would have been incurred in any event in the commencement and prosecution of RFS's claim. 3. The cross-claimants pay all costs reasonably incurred by the second, third fourth and fifth cross-defendants in defending the cross-claim. 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 N1092 OF 2004 BETWEEN: RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) PLAINTIFF AND: SOFCOM LIMITED (ACN 088 488 724) FIRST DEFENDANT FAST SCOUT LIMITED (ACN 088 488 724) SECOND DEFENDANT ALTERA CAPITAL LIMITED (ACN 082 541 437) THIRD DEFENDANT CROSS CLAIM: SOFCOM LIMITED (ACN 088 488 724) FIRST CROSS-CLAIMANT FAST SCOUT LIMITED (ACN 088 488 724) SECOND CROSS-CLAIMANT ALTERA CAPITAL LIMITED (ACN 082 541 437) THIRD CROSS-CLAIMANT RIVKIN FINANCIAL SERVICES LIMITED (ACN 061 287 045) FIRST CROSS-DEFENDANT ALAN DAVIS GROUP PTY LTD (ACN 000 762 489) SECOND CROSS-DEFENDANT NETWORK LIMITED (ACN 091 780 924) THIRD CROSS-DEFENDANT COLE KABLOW SUPERANNUATION PTY LTD (ACN 082 873 541) FOURTH CROSS-DEFENDANT ALAN ANDEREW DAVIS FIFTH CROSS-DEFENDANT JUDGE: EMMETT J DATE: 9 DECEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 26 November 2004, I made orders that the application in this proceeding be dismissed and that the cross-claim in the proceeding be dismissed (see Rivkin Financial Services Limited v Sofcom Limited [2004] FCA 1538). All parties have now made submissions as to the orders for costs, if any, that should be made as a consequence of that disposition of the proceeding. All parties in effect, ask for indemnity costs. In these reasons, I shall adopt the terms defined in my principal reasons. 2 It is first necessary to consider the question of costs as between the Company and the Khan Companies. I concluded that the allegations made by the Company, of contravention of the insider trading provisions by the Khan Companies, were not made out. I also concluded that in the circumstances, if there had been a contravention I was not satisfied that the relief claimed was appropriate. 3 The insider trading provisions in question are novel, in the sense that they have only been enacted in the relevantly recent past. There were reasonable questions as to their proper construction and their effect in the circumstances. I consider that the claims that were made by the Company against the Khan Companies, while unsuccessful, were at least arguable. I had some difficulty in reaching the conclusions that I did, such that I am not persuaded that any order as to the costs of the claim should depart from the usual practice. The appropriate order is that the Company should pay the Khan Companies' costs of its claim. 4 That then leads me to the cross-claim. First, it is necessary to deal with the claim by the Khan Companies against the Company. The close, temporal connection between the notification of the acquisition by the Khan Companies of in excess of five percent and the allotments of 2 July 2004 would fairly give rise to a concern that there may have been some connection between the two. The evidence showed that the transactions of 2 July 2004 were entered into with considerable expedition and there is substance in the assertions made by the Khan Companies that investigations that might normally be made were not, in fact, carried out. 5 Those considerations, in my view, may well have justified the commencement of a proceeding against the Company in relation to the allotments of shares so soon after the notification of the acquisition of more than five percent by the Khan Companies. The thrust of the complaint made in the cross-claim is that the allotments and other transactions were entered into for an improper purpose, namely, to frustrate the Khan Companies in their desire to exercise the right, arising from their holding of five percent of the shares, to have a meeting of members called. However, by 5 July 2004, it must have been apparent that that could not have been a purpose of those responsible for the allotment. 6 As I said in my reasons of 26 November 2004, it would be very curious if the purpose and intent of the relevant parties was to frustrate the Khan Companies, given that, having received a notice requiring a meeting to be convened, Mr Davis announced that a meeting would be convened. One possibility might have been that Mr Davis was acting in a very devious manner by making the announcement, never intending that the meeting would be called. No such suggestion, however, was put and it really ought to have been apparent, by the week beginning 5 July 2004, that the claim that was subsequently mounted was very speculative. 7 It was also alleged in the cross-claim that the transactions of 2 July 2004 were improvident (see my reasons of 26 November 2004 at pars [137-151]). I do not consider that there was any genuine attempt to prosecute those claims. In all of the circumstances, I do not consider that the claims of oppression in relation to the conduct of the affairs of the Company and of contravention of the insider trading provisions by the Company, were justified. 8 While the claim brought by the Company was speculative in the sense that it involved novel questions, the proceeding would have been disposed of some time in July 2004 but for the making of the cross-claim. Having regard to the conclusions that I reached, I consider that the cross-claim should not have been brought. It is appropriate therefore, to order the Khan Companies to pay all costs reasonably incurred by the Company in defending the cross-claim except to the extent that those costs would otherwise have been incurred in the commencement and prosecution of the Company's claim. It would follow from that conclusion that the costs of the other cross-defendants should be borne by the Khan Companies on a similar basis. That is to say, by 5 July 2004, whatever concerns that might have been generated by the allotments of 2 July 2004 ought to have been dissipated. 9 The further allegations made against the other cross-defendants in respect of alleged contravention of the insider trading provisions were without substance. In all the circumstances, I consider that it is appropriate to order the Khan Companies to pay all costs reasonably incurred by the second to fifth cross-defendants in their defence of the cross-claim. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 10 February 2005 Counsel for the Plaintiff: JRJ Lockhart, J Horowitz Solicitor for the Plaintiff: Atanaskovic Hartnell Counsel for the First, Second and Third Defendants: M Oakes SC, R Harper SC Solicitor for the First, Second and Third Defendants: Michell Sillar Counsel for the First, Second and Third Cross Claimants: M Oakes SC, R Harper SC Solicitor for the First, Second and Third Cross Claimants: Michell Sillar Counsel for the First Cross Defendant JRJ Lockhart, J Horowitz Solicitor for the First Cross Defendant Atanaskovic Hartnell Counsel for the Second and Fifth Cross Defendants L P Robberds QC, B DeBuse Solicitor for the Second and Fifth Cross Defendants Snelgrove Boyle Neilson Counsel for the Third Cross Defendant P H Greenwood SC Solicitor for the Third Cross Defendant Dibbs Barker Gosling Counsel for the Fourth Cross Defendant A McGrath Solicitor for the Fourth Cross Defendant Turks Legal Date of Hearing 9 December 2004 Date of Judgment: 9 December 2004