Federal Court of Australia Stephens v Sena, in the matter of Vtara Solar Pty Ltd [2020] FCA 1179 File number: ACD 18 of 2020 Judgment of: STEWART J Date of judgment: 30 July 2020 Catchwords: COSTS – proper exercise of discretion to award costs in circumstances where claim proposed to be discontinued – departure from general policy of the law that the plaintiff should be permitted to discontinue a proceeding but should ordinarily pay the costs of the defendant – where defendant acceded to orders for substantive relief – where defendant unable to show relief was not warranted PRACTICE AND PROCEDURE – award of costs on a lump sum basis pursuant to r 40.02 of the Federal Court Rules 2011 (Cth) Legislation: Federal Court Rules 2011 (Cth) rr 26.12, 40.02 Cases cited: Clark v ING Life Limited [2007] FCA 1960 Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421 Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; 186 CLR 622 Rickus v Motor Trades Association of Australia Superannuation Fund Proprietary Limited [2010] FCAFC 16; 265 ALR 112 Division: General Division Registry: Australian Capital Territory National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 32 Date of hearing: 30 July 2020 Counsel for the Plaintiff: Dr C Ward SC Solicitor for the Plaintiff: Mark Hanna Lawyers Counsel for the Defendant: D M Roberts Solicitor for the Defendant: Stacks Law Firm ORDERS ACD 18 of 2020 IN THE MATTER OF VTARA SOLAR PTY LTD BETWEEN: CLIVE STEPHENS Plaintiff AND: LUCAS DE MENDONCA SENA Defendant order made by: STEWART J DATE OF ORDER: 30 JULY 2020 THE COURT ORDERS THAT: 1. Order 1 of the orders of Farrell J made 24 April 2020 is discharged. 2. The plaintiff has leave under r 26.12 of the Federal Court Rules 2011 (Cth) to discontinue the proceedings by filing a notice of discontinuance which he should do forthwith. 3. The defendant is to pay the plaintiff's costs of the proceeding which costs are assessed on a lump sum basis in the amount of $5,000. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) STEWART J: 1 The plaintiff seeks leave to discontinue the proceeding on the basis that the defendant pay the costs of the proceeding. The plaintiff seeks those costs on a lump sum basis in the modest sum of $5,000. The relevant background to the hearing today is the following. 2 On 22 April 2020, the plaintiff filed an originating process in which he sought the following relief, paraphrased: (1) A declaration that the defendant breached his duty as a director of Vtara Solar Pty Ltd by unlawfully and without authority or notice reallocating an 80 per cent shareholding in Vtara to himself and concurrently removing the plaintiff as a director of the company without notice to either the plaintiff or any other members of the company. (2) Injunctive relief restraining the defendant from dealing with any company assets for any purpose other than as in order (3) except as expressly approved by a general meeting of the members held and conducted in accordance with the provisions of the Corporations Act 2001 (Cth) or, in the alternative, by both directors of the company. (3) An order by way of injunction that the defendant file with ASIC the necessary documents to rescind the changes he made to the ASIC corporate records of Vtara on 3 and 24 March 2020 and return the shareholding and directors of Vtara to the position as they stood immediately prior to 3 March 2020 by the reinstatement of the plaintiff as a director and the reinstatement of his shareholding of 80 per cent of the 100 ordinary shares issued. 3 The originating process also claimed costs and, in the alternative to the relief already indicated, damages and costs. 4 The basis for the relief as set out in the plaintiff's affidavit filed at the time of the originating process includes the following. 5 On 10 January 2019, the defendant transferred to the plaintiff two parcels of 65 per cent and 15 per cent ordinary shares of Vtara. As a result, the plaintiff held an 80 per cent shareholding in Vtara. The allotment of shares in Vtara as at that date was accordingly such that the plaintiff held 80 per cent of ordinary shares, the defendant held 15 per cent of ordinary shares, and a third party held 5 per cent of ordinary shares. The plaintiff and the defendant were the two directors of the company. 6 On or around 17 March 2020, the company accountant alerted the plaintiff that the defendant had stated in an email to her that he had removed the plaintiff as a director of the company. By means of a company search conducted on 20 March 2020, the plaintiff discovered that on 3 March 2020 the defendant had used the company key to alter the allotment of shares in the company, transferring the plaintiff's entire allotment of 80 per cent of shares to himself, as recorded in the register kept by ASIC under the Act. 7 The plaintiff also learnt that the defendant had removed the plaintiff as a director of the company as recorded in the ASIC register. 8 The plaintiff said in his affidavit that the transfer of shares and removal of him as a director was effected without notice to or approval of members of the company. He says that he was not notified in any capacity, either as director or as shareholder. 9 When he became aware of the changes to the register, the plaintiff had his solicitor file a complaint with ASIC to have ASIC reverse the transfer and the change in directorship. The complaint and request to ASIC was filed on 25 March 2020. On 31 March 2020, ASIC responded that it was an internal matter and recommended that the plaintiff seek legal advice. 10 On the same day, the plaintiff instructed the accountant to conduct a new company search which revealed that on 24 March 2020 the defendant had increased the allotment of shares in the company to 1200 and allotted 1140 of these shares to himself, making his holding 95 per cent of the company. 11 Based on legal advice, the plaintiff had his solicitor write to the defendant on 15 April 2020 demanding that he reverse the changes and undertake not to use the company key again without approval of the company membership or a meeting of the directors. In a letter from the plaintiff's solicitor to the defendant, the defendant was given until midday on Friday 17 April 2020 to respond and confirm that he would act as requested, failing which the plaintiff would seek urgent relief in this Court. 12 The plaintiff said that at the time of swearing his affidavit, he had received no response to his solicitor's letter. His solicitor made contact with a solicitor purporting to represent the defendant and extended the deadline for a response until Tuesday 21 April 2020 but no response was received. 13 It was on that basis that the plaintiff then approached the Court. The matter came on for hearing before Farrell J on the duty list on 23 April 2020. At the hearing the defendant gave an undertaking through counsel that he would, by no later than 4:00pm on 24 April 2020, file or lodge with ASIC all necessary documents to reverse the notification he caused to be made to the corporate records of Vtara on 3 March 2020 and 24 March 2020. The defendant also consented to an interim injunction restraining him from dealing with any assets of the company for any purpose other than to give effect to the undertaking that he had given. 14 On 24 April 2020, Farrell J made orders noting the defendant's undertaking to the Court and the injunction previously mentioned as well as the plaintiff's usual undertaking as to damages. Her Honour also made programming orders for the further conduct of the matter which included that the plaintiff would file an amended originating process and a statement of claim by 14 May 2020. The orders provided for a defence and cross-claim by the defendant thereafter. 15 By letter from the plaintiff's solicitor to the defendant's solicitor on 13 May 2020, the plaintiff indicated that it no longer wished to pursue the matter. The declaratory relief being the only question of relief that remained, the plaintiff said that it no longer required such relief and sought costs from the defendant in the sum of $5,000. There was no response to that letter. 16 On 15 May 2020, which is to say the day after the plaintiff was due to have filed an amended originating process and statement of claim in accordance with the orders of 24 April 2020, the plaintiff filed the interlocutory process that is before me for hearing today. 17 That interlocutory process, as amended by leave granted by me during the course of the hearing, seeks the following: (1) An order discharging the interlocutory injunction made on 24 April 2020. (2) That the plaintiff has leave to discontinue the proceeding. (3) That the defendant pay the plaintiff's costs of the proceeding on a lump sum basis assessed in the amount of $5,000. 18 The matter was allocated to me for hearing on the duty list. On 19 June 2020, I ordered that evidence was to be filed on the interlocutory application. On 25 June 2020, an affidavit was filed by the defendant. The affidavit was not confined to the questions of discontinuance and costs but purported to deal substantively with the underlying dispute between the parties. In it, the defendant accepted that he had caused the company details on the ASIC register to be altered. He offered no authority or justification for that unilateral conduct other than as arising from the as yet undetermined underlying dispute between the parties. 19 The defendant opposes leave being granted to the plaintiff to discontinue the proceeding. He does so because he says that he wishes to defend the proceeding and "clear [his] name" and because he wishes to bring a cross-claim to ventilate the underlying dispute. 20 With regard to defending the proceeding and clearing his name, since the plaintiff no longer wishes to seek a declaration, there is nothing to defend. The plaintiff can, as of right, abandon that relief and there is no basis on which the defendant can force the plaintiff to keep litigating the point. There is equally no basis to force the plaintiff to keep litigating for the purpose of the defendant being able to clear his name, whatever that may entail. 21 The plaintiff accepts that the interim injunction which was made pending final relief must be discharged on the proceeding being discontinued. That injunction, therefore, offers no basis to prevent the plaintiff discontinuing the proceeding. 22 With regard to the cross-claim, the defendant says that he wishes to claim under the Australian Consumer Law for misleading and deceptive conduct on the grounds that, so he says, the plaintiff induced him to transfer an 80 per cent shareholding in the company for a consideration of $1, which consideration was never paid. The inducement for the transfer of the shareholding is said to be that the plaintiff promised to cause to be injected into the company a sum of $5 million to enable the company to conduct business in Australia and overseas. 23 The defendant accepted that in the event that the proceeding was discontinued, there would be no obstacle to him bringing a fresh proceeding for the purpose of ventilating his proposed claim. That proposed claim or cross-claim is thus no obstacle to the proceeding being discontinued. 24 The only remaining issue is costs. Ordinarily, a party who discontinues a proceeding must bear the costs – see r 26.12(7) of the Federal Court Rules 2011 (Cth). The plaintiff says that the ordinary rule does not apply because the defendant wholly capitulated on the pertinent relief that had been sought and offered no justification for his unilateral conduct in causing the ASIC register to be altered. 25 It is not the function of the court to make a prediction as to the outcome of a hypothetical case: see Clark v ING Life Limited [2007] FCA 1960 at [16] per Rares J and Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd [2010] FCAFC 16; 265 ALR 112 at [118] per Jacobson, Siopis and Foster JJ. 26 Also, if it appears that both parties have acted reasonably in commencing and defending the proceeding 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 proceeding: Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin [1997] HCA 6; 186 CLR 622 at 625 per McHugh J, and Rickus at [118]. 27 In this case, the defendant capitulated on the principal relief once the proceeding was brought, offering no justification for what he had done. This is consequently not a case of the Court being asked, on the question of costs, to make a prediction on a hypothetical outcome. That turns attention to the defendant's conduct. 28 The defendant says in his defence that he did not actually, in the sense of with legal efficacy, change the shareholding and the directorships of the company, but he accepts that he unilaterally caused the ASIC register to incorrectly reflect those matters. His counsel accepted that he had no authority on behalf of the company to do that, that is to say, to cause a difference between the true legal and factual position and that which was recorded in the register. 29 Since the declaratory relief in the originating process was never pursued or litigated in any way other than by filing the originating process, no statement of claim, defence or evidence was filed in relation to it. The defendant therefore incurred no costs in respect of it. He says that his affidavit deals with it to some degree, but that affidavit was filed pursuant to programming orders for this discontinuance and costs hearing, not for the principal proceeding. 30 The defendant was never called upon to answer the declaratory relief. In the circumstances, and in contrast to Elevate Brandpartners Ltd v Hammond (No 4) [2020] FCA 421, the fact of the declaratory relief being extant in the originating process at the time that discontinuance is sought, is no answer to the plaintiff's claim for costs. The plaintiff has been wholly successful and should have his costs. 31 The plaintiff's evidence is that his true costs are far more – more than three times more – than the $5,000 he claims. He seeks such a low figure only to avoid argument and bring the matter to an end. That is a commendable course. 32 There is every justification for him to have these costs on a lump sum basis in accordance with r 40.02(b) of the Rules. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 17 August 2020