FEDERAL COURT OF AUSTRALIA Wellington Capital Limited, in the matter of Premium Income Fund v Premium Income Fund Action Group (No 2) [2012] FCA 1516 Citation: Wellington Capital Limited, in the matter of Premium Income Fund v Premium Income Fund Action Group (No 2) [2012] FCA 1516 Parties: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 v PREMIUM INCOME FUND ACTION GROUP INCORPORATED (NSW INCORPORATED ASSOCIATION NO. 9894759, CHARLES ROBERT HODGES and PETER GRENADIER File number: QUD 140 of 2011 Judge: DOWSETT J Date of judgment: 14 February 2012 Date of hearing: 14 February 2012 Place: Brisbane Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 13 Counsel for the Plaintiff: Mr P O'Higgins Solicitor for the Plaintiff: McCullough Robertson Lawyers Counsel for the First Defendant: Mr P Dunning SC and Mr G Beacham Solicitor for the First Defendant: DLA Piper Australia Counsel for the Second Defendant: The Second Defendant did not appear Counsel for the Third Defendant: The Third Defendant did not appear IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 140 of 2011 IN THE MATTER OF PREMIUM INCOME FUND BETWEEN: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 Plaintiff AND: PREMIUM INCOME FUND ACTION GROUP INCORPORATED (NSW INCORPORATED ASSOCIATION NO. 9894759 First Defendant CHARLES ROBERT HODGES Second Defendant PETER GRENADIER Third Defendant JUDGE: DOWSETT J DATE OF ORDER: 14 FEBRUARY 2012 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. the first defendant pay three-quarters of the costs of the proceeding upto and including 25 July 2011; and 2. the first defendant pay the costs of the appearance today. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 140 of 2011 IN THE MATTER OF PREMIUM INCOME FUND BETWEEN: WELLINGTON CAPITAL LIMITED ACN 114 248 458 AS RESPONSIBLE ENTITY OF THE PREMIUM INCOME FUND ARSN 090 687 577 Plaintiff AND: PREMIUM INCOME FUND ACTION GROUP INCORPORATED (NSW INCORPORATED ASSOCIATION NO. 9894759 First Defendant CHARLES ROBERT HODGES Second Defendant PETER GRENADIER Third Defendant JUDGE: DOWSETT J DATE: 14 FEBRUARY 2012 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In July of last year I heard an application in this matter, making final declarations concerning some matters but leaving other matters outstanding. The proceedings concerned the validity of a notice purporting to convene a meeting of the Premium Income Fund (the "Fund") of which the plaintiff was the responsible entity. The first defendant is an incorporated associated, having as its members some of the unit holders in the Fund. The second and third defendants are office holders of the first defendant. In the end, I declared that a meeting of unit holders purportedly convened by the second and third defendants had not been validly called, primarily because the notice had not been sent to all relevant unit holders in accordance with the requirements of the Corporations Act 2001 (Cth) (the "Act"). 2 I also held that the meeting, when originally convened and subsequently adjourned, had lapsed for want of a quorum. A number of other quite complex issues were ventilated in the course of the hearing which extended over three days. The hearing was conducted in the context of urgency in that the meeting had been purportedly adjourned to a date shortly after the hearing. It was necessary that a decision be made as to the validity of the meeting at the earliest possible time. A number of the other issues had been raised I did not decide them. However I indicated that if the parties wished to pursue those matters further they should apply accordingly. The parties have not done so. The plaintiff now seeks an order for costs in connection with the proceedings. 3 The Court has power to make an order for costs in circumstances in which no final determination has been made. Of course that is not strictly the case here. Part of the proceedings has been finally resolved but other parts remain, or presently remain, outstanding. In Re The Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5, McHugh J said: In an appropriate case a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation … Moreover, in some cases a judge may feel confident that although both parties have acted reasonably one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect to the litigation, but such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile the proper exercise of the costs discretion will usually mean that the court will make no order as to the costs of the proceedings. This approach has been adopted in a large number of cases. The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the Minister to pay the whole or part of the cost of the proceedings. In determining whether or not the prosecutor acted reasonably, it is necessary to mention some further facts in the matter. 4 In Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201, Hill J held: (1). When either party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order. (2). It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial …This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3). In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them …; (4). In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation …; (5). Where proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted … 5 These principles were adopted by Goldberg J in Yates Property Corporation Pty Ltd v Boland [2000] FCA 1106. This is not, strictly speaking, a case in which interlocutory relief has been obtained, or a case in which the matter has not been finally resolved. 6 The primary considerations identified by McHugh J appear to have been the reasonableness of the applicant's conduct in commencing the proceedings and the subsequent reasonableness of the parties' conduct of the proceedings. In the present case it is, I think, accurate to say that the matter became very much a dispute between Castlereagh Securities, which had indicated its willingness, perhaps enthusiasm, for becoming the responsible entity for the Premium Income Fund, and the plaintiff in these proceedings, which was the responsible entity. I note the observation by Judd J in Lachlan Reit Limited v Garnaut [2010] VSC 399, that a person in a position such as that of the plaintiff is in a position of conflict of duty and interest, and that it has a duty to maintain a neutral position in the process of calling a meeting. 7 Of course that does not, I think, mean that the responsible entity must completely abstain from involvement in a process aimed at securing its removal. There are obviously many matters upon which it would want to comment. Nonetheless, it is the case that the responsible entity is obliged to keep in mind, and act in accordance with the interest of unit holders. In the present case many of the areas in which it might be said that the plaintiff is in a position of conflict of interest have not been litigated to completion. I feel no real confidence on the material, as to the likely outcome were these matters to be resolved finally. 8 The plaintiff effectively asserts that it is the successful litigant in respect of the primary issue raised in these proceedings, and that it should therefore have its costs. It opposes any attempt to apportion those costs as between the issues which were finally resolved and those which were not. It submits that the principal consideration must be the fact that it has been successful in the proceedings, and that such success is usually sufficient to attract a favourable exercise of the discretion as to costs. The defendants take a more detailed approach to the question, having regard to various issues, including many which have not been resolved. It submits firstly, that because of the provisions of s 1322 of the Act it was always necessary that the plaintiff come to court in order to establish that the meeting would be invalid because of the presumption created by that section as to the validity of the meeting. That is no doubt true, but it is also the case that the need to come to court was brought about by what appears to have been a virtually deliberate decision by Castlereagh not to serve all unit holders in accordance with the requirements of the Act. I dealt with that matter in my earlier reasons. 9 It is then said that nonetheless, some of the considerations relevant to exercise of the discretion conferred by that section have been, in fact, brought about by the conduct of the plaintiff. It is the fact that Ms Hudson declined to exercise proxies given to her in connection with the meeting so creating a situation in which there was no quorum. I assume for the moment that the plaintiff should be held responsible for Ms Hudson's actions although whether that is correct in law has not been argued. Whilst there may be an obligation upon a proxy holder to vote the proxies, it is by no means clear to me that in the circumstances of this case it was inappropriate conduct on her part to decline to do so. The circumstances surrounding the calling of the meeting, and the way in which it was conducted, as appear from my reasons, suggest that it might well have been consistent with a proper exercise of the proxy power, not to attend and vote. However, the matter has not been litigated to completion and so I am unwilling to make any assessment as to the likelihood or otherwise of any particular outcome concerning that issue. 10 The defendants also point to the fact that in the course of my reasons I made a comment about the unusual nature of this case. The case is unusual, but I do not immediately see that the unusual nature of the circumstances is relevant to the exercise of the discretion as to costs. It is then suggested that the plaintiff should not be rewarded in costs for unnecessarily bringing separate proceedings in separate registries of the court. As appears from my reasons, proceedings were on foot in the Victorian registry and were in fact disposed of by Gordon J. No point was taken before me at the hearing as to the appropriateness of commencing separate proceedings in Queensland, and I do not think that the point can be taken now. 11 It is also true that in the course of my reasons I accepted the possibility that both parties had, to some extent, contributed to the unfortunate circumstances which deprived the unit holders of their capacity to vote at a meeting on a matter which was undoubtedly of great importance to them. However, to make that observation is not necessarily to recognise any degree of fault in either party. It was rather a quite general comment about matters which it was not necessary for me to resolve. I do not feel sufficiently confident about the evidence, as it is presently before me, to go any further now than I did in my reasons. 12 It seems to me that it was necessary for the plaintiff to commence proceedings to establish the invalidity of the meeting. That meant that it was necessary to come to court. I do not see that matter to be a factor disqualifying a successful applicant or plaintiff from obtaining an order for costs. I also accept that not all issues have been resolved and keep in mind the possibility that some of the issues may have been resolved unfavourably to the plaintiff. Although some of the actions taken on both sides may not have been wise, I would not characterise the conduct of either side in the course of the conduct of the proceedings as necessarily being unreasonable or, perhaps more accurately, more unreasonable than the conduct of the other side. 13 In the circumstances it seems to me that the plaintiff, having been successful, is entitled to an order for costs, but I consider that the order should not reflect the whole of the costs of the proceedings, given that a number of issues remain outstanding. In those circumstances I order that the defendants pay three-quarters of the costs of the plaintiff of the proceedings, up to and including the date upon which I published my reasons, 25 July 2011. I also order that the defendants pay the plaintiff's costs of preparation for the appearance today and of the appearance. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 26 June 2013