FEDERAL COURT OF AUSTRALIA Lamond (No 2) [2017] FCA 548 File number: SAD 333 of 2016 Judge: BESANKO J Date of judgment: 19 May 2017 Catchwords: COSTS – consideration of an application for costs of and incidental to orders sought in an Urgent application before start of a proceeding – where prospective applicant had sought, but subsequently abandoned, an application for interlocutory relief – whether the question of costs be reserved to the trial judge – whether costs be prospective respondents' costs in the cause – where orders sought unlikely to be obtained in the circumstances. PRACTICE AND PROCEDURE – consideration of an application for winding up on the just and equitable ground – where party contends that the applicant has made the application for a collateral purpose – where party contends that the applicant lacks clean hands – where allegations of misconduct also the subject of another related proceeding sought to be brought on behalf of the company – where winding up application requires consideration of material relevant to the related proceeding – where no authority for submission that a court may determine a lack of clean hands on a prima facie basis – where considerable overlap between the issues in both related proceedings – where both proceedings would require lengthy trials – whether consolidation of proceedings an appropriate course. Legislation: Corporations Act 2001 (Cth) ss 237, 461, 467, 472 Federal Court Rules 2011 (Cth) r 7.01 Cases cited: Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd & Ors (1984) 9 ACLR 91 Gregor v British-Israel-World Federation [2002] NSWSC 12 Guerinoni v Argyle Concrete and Quarry Supplies Pty Ltd [2002] 34 ACSR 469 In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 15 In the matter of Mudgee Dolomite & Lime Pty Limited [2016] NSWSC 1933 Kickers International SA v Paul Kettle Agencies Limited and Another [1990] FSR 436 Lamond [2017] FCA 180 ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270 Rafferty v Time 2000 West Pty Limited (No 3) [2009] FCA 727 Ruut v Head (1996) 20 ACSR 160 Singtel Optus Pty Limited v Vodaphone Pty Limited (No 2) [2011] FCA 260 Dates of hearing: 20 & 24 April 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 28 Counsel for the Prospective Applicant: Mr C Munt Solicitor for the Prospective Applicant: Scanlon Carroll Pty Ltd Counsel for the First, Third, Fourth, Sixth, Eighth and Tenth Prospective Respondents: Mr R Ross-Smith Solicitor for the First, Third, Fourth, Sixth, Eighth and Tenth Prospective Respondents: DeGaris Lawyers Counsel for the Second and Fifth Prospective Respondents Mr T Duggan SC with Mr R Kennett Solicitor for the Second and Fifth Prospective Respondents Cowell Clark Commercial Lawyers Counsel for the Seventh and Ninth Prospective Respondents: The Seventh and Ninth Prospective Respondents did not appear ORDERS SAD 333 of 2016 BETWEEN: PETER COLIN LAMOND Prospective Applicant AND: GREEN TRIANGLE LIVESTOCK & REAL ESTATE PTY LTD ACN 600 378 489 Prospective First Respondent OWEN ROBERT PETTINGILL Prospective Second Respondent CHRISTOPHER JOHN MANSER (and others named in the Schedule) Prospective Third Respondent JUDGE: BESANKO J DATE OF ORDER: 19 MAY 2017 THE COURT ORDERS THAT: 1. The prospective applicant pay the costs of the first, third, fourth, sixth, eighth and tenth prospective respondents of and incidental to paragraphs 5 and 6 of the applicant's 'Urgent application before start of a proceeding' filed on 8 December 2016, paragraphs 5 and 6 of the applicant's 'Amended Urgent application before start of a proceeding' filed on 9 December 2016 and paragraphs 5 to 10 of the applicant's 'Further Amended Urgent application before start of a proceeding' filed on 13 January 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BESANKO J: Introduction 1 Mr Peter Lamond issued an Urgent application before start of a proceeding under r 7.01 of the Federal Court Rules 2011 (Cth) on 8 December 2016. The application concerned the operations and activities of a company, P & L Livestock Pty Ltd (P & L Livestock), of which he is a director and one of two equal shareholders. The other director and shareholder is Mr Owen Pettingill and he is a prospective respondent. Mr Pettingill's wife is also a prospective respondent. There are other prospective respondents, including Green Triangle Livestock & Real Estate Pty Ltd and parties associated with that company. For convenience, I will refer to these respondents as the Green Triangle respondents. Further details of the nature of this proceeding are set out in a decision I made in relation to another application in the proceeding (Lamond [2017] FCA 180). 2 These reasons address two matters which have arisen in the course of the proceeding. 3 Two events which have occurred since the proceeding was commenced are relevant to a consideration of those matters. On 31 January 2017, Mr Pettingill issued an interlocutory process seeking an order winding up P & L Livestock. On 12 April 2017, Mr Lamond issued a separate proceeding seeking leave under s 237 of the Corporations Act 2001 (Cth) to bring a proceeding on behalf of P & L Livestock. There is a proposed Originating Application and proposed Statement of Claim annexed to an affidavit of one of his solicitors. That application has not yet been heard and determined. The Application by the Green Triangle Respondents for an Order for Costs against Mr Lamond 4 Two of the orders which Mr Lamond sought in his Urgent application before start of a proceeding were as follows: 5. An order that Green Triangle Livestock & Real Estate Pty Ltd, Christopher John Manser [sic] Garth John Manser and Brooke Stephenson be restrained until further order from in any way using or disclosing the confidential information of P & L Livestock Pty Ltd comprised in or by all customer lists of P & L Livestock Pty Ltd. 6. An order that Green Triangle Livestock & Real Estate Pty Ltd, Christopher John Manser [sic] Garth John Manser and Brooke Stephenson be restrained until further order from in any way contacting, whether in writing, by telephone or in person, any person who is or has at any time been a client of P & L Livestock Pty Ltd, for the purposes of soliciting business for Green Triangle Livestock & Real Estate Pty Ltd or otherwise in any way in connection with the business, activities or affairs of Green Triangle Livestock & Real Estate Pty Ltd. 5 On or about 9 December 2016, Mr Lamond filed an Amended Urgent application before start of a proceeding. The orders sought in paragraphs 5 and 6 of that document were the same as the orders sought in the previous document, save and except that Ms Kerry Hill was added as a party against whom the orders were sought. 6 On or about 13 January 2017, Mr Lamond filed a Further Amended Urgent application before start of a proceeding. The orders sought in paragraphs 5 and 6 were in substantially the same terms as the Amended Urgent application before start of a proceeding with the addition of Mr Robert William Cruise and Mr Kevin Norman as parties against whom the orders were sought. There were further relevant orders sought in paragraphs 7, 8, 9 and 10. In paragraph 7, an order is sought restraining any of the parties named in paragraph 6 from counselling, procuring, assisting or causing any person to do any of the things referred to in paragraph 6. In paragraph 8, an order is sought requiring the parties named in paragraph 6 to deliver up or cause to be delivered up copies of the client lists of P & L Livestock. In paragraph 9, an order is sought requiring the parties named in paragraph 6 to delete electronic copies of the client lists. In paragraph 10, an order is sought requiring the parties named in paragraph 6 to file and serve affidavits verifying that they had fully complied with the orders for delivery up of the relevant documents and deletion of electronic copies. The most important of the orders set out in the Further Amended Urgent application before start of a proceeding are those contained in paragraphs 5 and 6, and in particular, paragraph 6. 7 On 7 April 2017, I made the following orders by consent: 4. Paragraphs 5 to 10 of the applicant's 'Further Amended Urgent application before start of a proceeding' filed on 13 January 2017 be dismissed. 5. Costs of and incidental to paragraphs 5 and 6 of the applicant's 'Urgent application before start of a proceeding' filed on 8 December 2016, paragraphs 5 and 6 of the applicant's 'Amended Urgent application before start of a proceeding' filed on 9 December 2016 and paragraphs 5 to 10 of the applicant's 'Further Amended Urgent application before start of a proceeding' filed on 13 January 2017 be listed for argument between the applicant and the first, third, fourth, sixth, eighth and tenth respondents on 20 April 2017 at 9.30am. 8 The Green Triangle respondents seek their costs of and incidental to the orders sought in paragraphs 5 to 10 of the Further Amended Urgent application before start of a proceeding. They also apply for an order that the costs be taxed or agreed and paid forthwith. 9 On 20 January 2017, Mr Lamond's solicitors wrote to the proposed respondents' solicitors advising them as follows: … Having considered in full the responding affidavit material filed on behalf of your clients, we have been instructed not to press at the hearing on 31 January 2017 the orders sought in paragraphs 3 to 10 of the Application. We are also instructed to not at this time serve on Mr and Ms Manser and Ms Stephenson (or any of the other respondents), Notices requiring them to be present for cross-examination at the hearing on 31 January 2017. The orders sought at paragraphs 2 and 11 to 13 of the Application will be pressed by our client at the hearing on 31 January 2017. The other orders will be pressed as soon as possible after we have gained access to and considered the electronic materials pursuant to the access regime the subject of the orders of 19 December 2017 [sic]. … 10 On 24 March 2017, Mr Lamond's solicitors wrote to the Green Triangle respondents' solicitors in the following terms: … When we obtained instructions and gave notice that our client intended to proceed with the orders sought in paragraphs 5 to 10 of the Application, it had been on the expectation that the second respondent's winding up application was to be heard imminently, with the orders for injunctions to be heard subsequently. Our client was prepared to pursue the injunctions in those circumstances if the winding up application failed and there was resultant certainty as to status of P & L at the time of the hearing of the injunctions. There would obviously be little utility in pursuing the injunctions if P & L is ultimately wound up. While our client maintains that P & L should not be wound up, there nevertheless remains a risk of it being wound up. In view of the events at yesterday's hearing, it now appears that the winding up application is unlikely to be heard before Easter and may be listed for up to 3 days, with the application for the injunctions likely in the circumstances to be heard in advance of the winding up application. We have obtained further instructions in relation to the injunction orders in the changed circumstances referred to above. Our client maintains that there are adequate and proper grounds for the injunction orders against the Green Triangle respondents, however in view of [sic] likelihood that the injunctions would now be heard before the winding up application, and the associated uncertainty with P & L's status, we are now instructed not to pursue paragraphs 5 to 10 of the Application. In the circumstances we are instructed to instead only pursue permanent injunctions along the lines of the interim or interlocutory injunctions contained in paragraphs 5 to 10 of the Application, on an expeditious basis. … 11 The proposed Originating Application in the proceeding commenced on 12 April 2017 seeks a number of orders. It is fair to say that orders 8 to 13 in substance correspond with orders 5 to 10 in the Further Amended Urgent application before start of a proceeding. It is important to note that Mr Lamond is also to be a party to the proposed proceeding and he claims an entitlement to the relief in paragraphs 8 to 13 in his own right (see paragraph 177 of the proposed Statement of Claim). 12 The Green Triangle respondents rely on the decision of Kickers International SA v Paul Kettle Agencies Limited and Another [1990] FSR 436 (Kickers). In that case, Mr Justice Hoffman (as his Lordship then was) considered the appropriate order for costs where the plaintiff had sought, but subsequently abandoned, an application for an interlocutory injunction. His Lordship considered that the question could not be settled simply by reference to practice and that it must be answered on the facts of the individual case. His Lordship considered that the appropriate question was whether it would be unfair in the case before him for the defendants to have the costs of the motion even if they lost at trial. His Lordship said (at 438): On balance I do not think that it would. Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion. I do not think it was. There fore whatever the outcome of the trial, the motion which has now been abandoned has put the defendants to a great deal of unnecessary expense. 13 His Lordship considered that it was not appropriate to reserve the costs of the motion to the trial judge for two reasons. First, it is difficult to reconstruct for the trial judge how things looked at the time of the interlocutory application. Secondly, and more importantly, very often there is no trial because the case settles. 14 An important consideration in the Kickers case is that the plaintiff abandoned its claim for an interlocutory injunction because it made an assessment that the balance of convenience was likely against it, having regard to the effect an interlocutory order was likely to have on the livelihood of one of the defendants. 15 Mr Lamond submitted that the appropriate order as to costs was that the question of costs be reserved to the trial judge. In the alternative, the appropriate order was that the costs be the respondents' costs in the cause. In support of those orders, he relied on three matters. First, the merits would be considered at trial, and it would be unfair if the Green Triangle respondents were awarded their costs and subsequently lost on the merits at trial. One thing should be noted and that is that when Mr Lamond refers to a trial, he is not referring to a trial in the present proceeding. He is referring to a trial in the action which he commenced on 12 April 2017 and in which he seeks leave to proceed in the name of the company and wishes to proceed in his own name. As I have said, the application to bring the proceeding in the name of the company has not as yet been determined. Secondly, Mr Lamond submitted that the costs incurred by the Green Triangle respondents would not be wasted because taking instructions and preparing affidavits would be legal work which would be useful and relevant for the proposed proceeding. In fact, it would be difficult for the taxing officer to separate the costs relevant to the interlocutory application and the costs relevant to a trial in the proposed action. Thirdly, Mr Lamond submitted that at all times his conduct has been reasonable. There would be no point in pursuing the injunctions if P & L Livestock was wound up. It was appropriate for him to abandon the claims for injunctions and orders for delivery up when it became clear that the winding up application would not be heard and determined for some time. 16 Mr Lamond submitted that there was no general rule to the effect that a successful defendant on an application for an interlocutory injunction would be awarded his or her costs. He referred to Singtel Optus Pty Limited v Vodaphone Pty Limited (No 2) [2011] FCA 260 at [2] and [3] per Nicholas J (order that costs be the respondent's costs in the proceeding); ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270 at [5]; (2000) 171 ALR 227 per Burchett J; Dale v Clayton Utz (No 3) [2013] VSC 593 at [18]-[20] per Hollingworth J; and Sunshine Coast Regional Council v Earthpro Pty Ltd and Ors [2014] QSC 271 at 24 per Peter Lyons J. 17 I have a broad discretion as to the appropriate order for costs. I agree with Mr Lamond that the fact that there are two proceedings not one in this case is not a material difference in terms of those cases to which I was referred. I take into account Mr Lamond's submissions, but I have reached the view that he should pay the costs sought by the Green Triangle respondents. I have reached that view principally because I think it unlikely Mr Lamond would have obtained the order sought in paragraph 6. The order sought to restrain the Green Triangle business from contacting past or present clients of P & L Livestock. For a business operating within a geographical area with a limited number of clients, this would have been a very significant restraint on Green Triangle and on people who wished to deal with it. 18 I do not think that there should be an order that the costs should be taxed and paid forthwith. I do not think the costs would be that substantial, but more importantly, I think they could be more accurately assessed after the determination of the proposed substantive proceeding (Rafferty v Time 2000 West Pty Limited (No 3) [2009] FCA 727 at [19]-[24]). The Case Management Issue 19 In Mr Pettingill's winding up application, he relies on various grounds, but his counsel quite properly indicated to the Court that the main ground was the just and equitable ground referred to in s 461(1)(k) of the Corporations Act. 20 Mr Lamond opposes the application to wind up P & L Livestock. On 30 March 2017, he filed a Notice of Appearance in the application to wind up P & L Livestock in which he set out his grounds of opposition. He contends that the application has not been made, or arguably has not been made, by Mr Pettingill on a bona fide basis, and he contends that the application has been made, or has arguably been made, by Mr Pettingill for a collateral purpose. He contends that Mr Pettingill lacks, or arguably lacks, clean hands. He particularises his claims as follows: 5.4 In particular as to paragraphs 5.1 to 5.3 above: (a) the Second Respondent has, along with the Third, Fourth, Sixth, Seventh, Eighth and/or Tenth Respondents, been involved, concerned or complicit in the establishment and activities of the First Respondent, in competition with the Ninth Respondent; (b) the Second Respondent has and/or has had an intent to seek to wind up the Ninth Respondent with the intent of working for or in connection with and/or obtaining an interest in or benefit from the business of the First Respondent; (c) the Second Respondent has conspired or colluded with the Third, Fourth, Sixth, Seventh, Eighth and/or Tenth Respondents in relation to the intent referred to in paragraph 5.4(b) above and for the purposes of gaining an advantage for the business of the First Respondent; (d) the Second Respondent has caused or facilitated livestock sales that would have otherwise been made by the Ninth Respondent to be made by the First Respondent, in exchange for a commission from the proceeds of such sales to be paid by the First Respondent to the Ninth Respondent, which has been to the detriment of the Ninth Respondent and the benefit of the First Respondent and has been done in connection with the intent referred to in paragraph 5.4(b) above; (e) the Second Respondent has aided, abetted, counselled, procured or induced the First, Third, Fourth, Sixth, Seventh, Eighth and/or Tenth Respondents in relation to the above matters; (f) the Second Respondent has, in connection with the above matters and as the director of the Ninth Respondent who was responsible for the day-to-day management of the Ninth Respondent's affairs, intentionally failed to carry out his duties and responsibilities over the period of November 2016 up to and including March 2017, including but not limited to in relation to the sale of livestock by the Ninth Respondent; (g) the Second Respondent has misappropriated or misused moneys and the credit of the Ninth Respondent; (h) the Second Respondent has breached his director's duties as a director of the Ninth Respondent, at common law, in equity (fiduciary duties) and under the Act, in connection with the above matters; and/or (i) the Second Respondent has aided, abetted, counselled, procured or induced or been knowingly involved or concerned in, breaches of confidence, breaches of implied contractual and/or fiduciary duties of fidelity and good faith and/or contraventions of sections 182 and 183 of the Act by the Third, Fourth, Sixth and/or Tenth Respondents, in particular in connection with the above matters and in connection with such persons taking steps concerning the setting up of the business of the First Respondent, to operate in competition with the Ninth Respondent, while they were employees of the Ninth Respondent, or such matters are at least reasonably arguable. 5.5 The winding up of the Ninth Respondent would preclude the Applicant from pursuing claims in relation to the matters set out in paragraph 5.4 above in the name of the Ninth Respondent under section 236 of the Act (with leave under 237 of the Act) as against the Second Respondent and various other of the Respondents. 5.6 It would also frustrate relief to be sought by the Applicant under section 233 of the Act for oppressive conduct under section 232 of the Act in relation to the matters set out in paragraph 5.4 above, in particular an order that the Applicant purchase the Second Respondent's shares in the Ninth Respondent at a value to be determined. 5.7 It would be unjust and inequitable for the Ninth Respondent to be wound up in those circumstances, thereby depriving the Applicant of the opportunity to pursue in the name of the Ninth Respondent or in his name, as the case may be, the claims and relief referred to in paragraphs 5.5 and 5.6 above, which are at least reasonably arguable. 5.8 While mutual trust and confidence does not exist between the Applicant and the Second Respondent, insofar as the Applicant is concerned this has been materially contributed to by the Second Respondent's conduct as referred to in paragraph 5.4 above. 5.9 The Applicant and the Second Respondent are not, and have not been for many years, jointly involved in the day-to-day management of the Ninth Respondent. 5.10 The business of the Ninth Respondent is able to operate effectively and without any material risk to the Ninth Respondent's assets notwithstanding the absence of mutual trust and confidence between the Applicant and the Second Respondent. 5.11 For the purposes of section 467(4) of the Act, another remedy is available to the Second Respondent, in particular a claim in relation to the wages and management fees to which the Second Respondent claims to be entitled and the continued operation of the Ninth Respondent pending the determination of the order to be sought by the Applicant under section 233 of the Act for the purchase by him of the Second Respondent's shares in the Ninth Respondent, and the Second Respondent is acting unreasonably in seeking to have the Ninth Respondent wound up. 21 These particulars raise serious allegations of misconduct, not only by Mr Pettingill, but also by one or more of the Green Triangle respondents. Furthermore, having perused the proposed Statement of Claim, it is apparent that a large number of the allegations raised in the above particulars are also the subject of the proposed Statement of Claim to be issued in the proceeding to be brought in the name of the company and Mr Lamond. 22 Initially, I considered that the winding up application should be heard as quickly as possible. If the relationship between Mr Lamond and Mr Pettingill had broken down to the point that it could not be repaired, then it seemed sensible to deal with the application as quickly as possible. I was referred to the broad and flexible powers given to the Court under s 467(3) of the Corporations Act. I provisionally listed the winding up application for hearing for three days commencing on 22 May 2017. However, as things progressed, I became concerned as to whether the application could be heard within three days. I directed the parties to file lists setting out the affidavits they relied on for the purpose of the winding up application. Mr Pettingill indicated that he would rely on 10 affidavits on the winding up application, and Mr Lamond indicated that he would rely on 17 affidavits on the winding up application. A number of the deponents would be required for cross-examination. 23 I indicated to the parties that I did not think that the winding up application could be disposed of within three days and that my estimate was in the order of two weeks. That led to a further concern about whether that would mean that there might be two reasonably lengthy trials or whether there was scope for the parties to agree to be bound by the findings in the first trial. I asked the parties to address me on the appropriate procedure in the circumstances. 24 Counsel for Mr Pettingill referred me to a passage in Gronow, MGR McPherson's Law of Company Liquidation, (Thomson Lawbook Co., subscription service) at p 3-5064 (update 59). The learned authors refer to the fact that the winding up procedure is equitable in origin and evidence in support of the application at the hearing was usually given by affidavit and not viva voce (Gregor v British-Israel-World Federation [2002] NSWSC 12 at [2] per Austin J). As I understood Mr Pettingill's submissions, I could refuse to allow cross-examination or I could limit cross-examination. I could mould the procedure in such a way as was appropriate. I could address issues about a lack of clean hands on a prima facie basis and I could decide that I would wind up the company even if the allegations of a lack of clean hands were to be made out. 25 Both counsel gave me a list of cases which they suggested were relevant to issues of a lack of clean hands in a winding up application and the relationship between the hearing of a winding up application raising a lack of clean hands and a substantive proceeding raising conduct which is part of the lack of clean hands argument in the winding up application. I do not need to discuss all of the authorities. It is sufficient for me to note that a lack of clean hands is an important consideration in deciding whether to wind up a company on the just and equitable ground, but it is not decisive (Ruut v Head (1996) 20 ACSR 160 at 162 per Santow J; In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [22] per Black J; Guerinoni v Argyle Concrete and Quarry Supplies Pty Ltd [2002] 34 ACSR 469 at [39] per Kennedy J). 26 I know of no authority which enables me to determine lack of clean hands issues on a prima facie basis. It is true that ultimately, a lack of clean hands may not prove decisive, but I cannot see how I could reach that conclusion without the evidence being received and tested and findings made. In the circumstances, the estimate of the hearing of three days is unrealistic. An estimate of two weeks or perhaps longer is a realistic estimate. 27 In terms of listing the winding up application, there are other considerations that seem to be relevant in light of the likely length of the hearing. There is Mr Lamond's application for leave to bring proceedings in the name of the company and the fact that, if leave is granted, there will be considerable overlap between the issues in the winding up proceeding and the proposed proceeding. If that point is reached, then there are issues as to whether the two proceedings should be heard together to avoid unnecessary expense and delay and the possibility of inconsistent findings (In the matter of Mudgee Dolomite & Lime Pty Limited [2016] NSWSC 1933 at [12] per Black J; Garden Mews-St Leonards Pty Ltd v Butler Pollnow Pty Ltd & Ors (1984) 9 ACLR 91 at 95 per McLelland J). 28 I will hear from the parties as to these matters. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 19 May 2017 SCHEDULE OF PARTIES SAD 333 of 2016 Respondents Prospective Fourth Respondent: GARTH JOHN MANSER Prospective Fifth Respondent: ELLEN PETTINGILL Prospective Sixth Respondent: BROOKE ANNA STEPHENSON Prospective Seventh Respondent: ROBERT WILLIAM CRUISE Prospective Eighth Respondent: KEVIN NORMAN Prospective Ninth Respondent: P & L LIVESTOCK PTY LTD ACN 074 280 327 Prospective Tenth Respondent: KERRY HILL