Supreme Court New South Wales Medium Neutral Citation: WAM Active Limited v Keybridge Capital Limited (No 3) [2024] NSWSC 1592 Hearing dates: 11 December 2024 Date of orders: 11 December 2024 Decision date: 11 December 2024 Jurisdiction: Equity - Corporations List Before: Nixon J Decision: See [67] Catchwords: COSTS – general rule that costs follow the event – whether successful party failed on a separable issue – whether any basis for award of indemnity costs Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), r 42.1 Cases Cited: Access Training Group Ltd v Jane [2024] NSWCA 204 Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 CIP Group Pty Ltd v So (No 2) [2023] FCA 321 Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 In the matter of Carbon Copies Composites Pty Ltd [2022] NSWSC 1762 In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 Lavercombe v Auscott Ltd [2006] NSWSC 867 WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496 Category: Costs Parties: WAM Active Limited (Plaintiff) Keybridge Capital Limited (First Defendant) Nicholas Francis John Bolton (Second Defendant) Representation: Counsel: D Krochmalik (Plaintiff) F Assaf SC w A Gandar (First Defendant) Solicitors: Mills Oakley (Plaintiff) Gadens (First Defendant) File Number(s): 2024/65373 Publication restriction: Nil EX TEMPORE JUDGMENT – REVISED 13 DECEMBER 2024 1. On 27 November 2024, I delivered reasons for judgment in this matter: WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496 (Primary Judgment). This judgment assumes familiarity with the Primary Judgment, and adopts defined terms used in that judgment. 2. At the time of delivering the Primary Judgment, I directed the parties to bring in short minutes of order to give effect to my findings in that judgment. Those orders have largely been agreed. The only remaining dispute concerns costs. 3. Each of WAM Active and Keybridge seeks an order that the other pay its costs. Keybridge, in addition, seeks costs on an indemnity basis from a series of cascading dates. 4. The starting point is the general rule in r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), namely, that if the Court makes any order as to costs, the Court is to order that the costs follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 5. Generally, the "event" refers to the event of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15] (Ward, Emmett and Gleeson JJA). 6. The hearing before me concerned the following claims in the Amended Originating Process: 1. first, an application by WAM Active for an order that Keybridge be wound up in insolvency, and/or on the just and equitable ground, and/ or on the basis of oppressive conduct; and 2. secondly, and in the event only that the Court declined to make a winding up order, an application by WAM Active for leave to bring a derivative action in the name of and on behalf of Keybridge against Keybridge's directors. 1. WAM Active failed to obtain a winding up order on any of the grounds on which it relied, but succeeded in its application for leave to bring a derivative action. 2. Keybridge did not oppose leave to bring the derivative action. It stated this position both in its defence and its written opening submissions. 3. So far as WAM Active is concerned, its costs of the application for leave to bring the derivative action application should be costs in the cause in the derivative suit: In the matter of Carbon Copies Composites Pty Ltd [2022] NSWSC 1762 at [26] per Black J; and CIP Group Pty Ltd v So (No 2) [2023] FCA 321 at [24] per Derrington J. 4. So far as Keybridge is concerned, its costs of the application for leave to bring the derivative suit were, given its lack of any opposition to that application, accepted to be de minimis. 5. Accordingly, the critical and contested issue is what order should be made in respect of the costs of the winding up application. Costs of the winding up application 1. In respect of the winding up application, the relevant "event" was success for Keybridge in opposing the order. It follows that, applying the general rule, Keybridge is entitled to its costs of the hearing of that application, unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 2. In that regard WAM Active relied on three matters. 3. First, WAM Active submitted that one relevant "event" was the payment of its debts which were the subject of the Statutory Demand. 4. WAM Active argued that this event, which occurred in early October 2024, meant that WAM Active's costs should be paid by Keybridge, at least so far as concerned the costs of the proceedings up to that date. 5. I do not accept this submission. The relevant event is to be determined by reference to the claims made in the proceeding and the practical result of a particular claim. WAM Active did not, in this proceeding, make any claim for payment of the debts which were the subject of the Statutory Demand. 6. WAM Active relied on the decision of Barrett J in Lavercombe v Auscott Ltd [2006] NSWSC 867. Lavercombe was not a case like the present, where a winding up application was litigated to judgment. Instead, it was a case where the proceedings were disposed of by consent, following the payment of the debt which was the subject of the statutory demand. 7. In those circumstances, Barrett J held (at [43]) that there was no relevant "event". 8. As his Honour noted, where a claim is withdrawn by consent, the general expectation is that each party should bear its own costs subject to some exceptions which are conveniently summarised by McHugh J in Re Minister for Immigration & Ethnic Affairs (Cth); ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at [624]-[625]. One such exception is that a costs order may be made where one party has acted unreasonably in a way which should be compensated by costs (Lavercombe at [44]). 9. In Lavercombe, Barrett J held that the petitioning creditor was entitled to an order for its costs in accordance with this principle, because the defendant had acted unreasonably in not paying the undisputed debt at an earlier point in time, which would have avoided the need for proceedings. 10. I do not consider that those observations regarding a situation where there is no relevant "event" provide a basis, where there is such an "event", for departing from the general rule. However, as I will discuss below, Barrett J's observations in Lavercombe regarding whether a petitioning creditor can be said to have behaved unreasonably in pursuing a winding up application in circumstances where an undisputed debt remains outstanding are relevant to consideration of Keybridge's application for indemnity costs. 11. Secondly, WAM Active relied on an offer which it made on 28 October 2024. This offer had three elements. 1. WAM Active would discontinue its winding up application, but would press its application for leave to bring the derivative action. 2. Keybridge would undertake not to conduct any capital raising until after its next shareholder meeting. 3. There would be no order as to costs of the proceedings as between WAM Active and Keybridge. 1. WAM Active did not advance a submission that it should be awarded indemnity costs from the date of this offer because Keybridge acted unreasonably in rejecting it. Instead, WAM Active submitted that this letter was "highly probative to the proper exercise of the Court's discretion", because there was no reason why Keybridge should not have accepted the offer at that time. 2. However, there was no factual basis for me to conclude that it was unreasonable for Keybridge to reject the proposed term in respect of capital raising. WAM Active did not, in these proceedings, seek any injunction in such terms. 3. It is unfortunate that no further engagement between the parties occurred in respect of this offer. It appears from this correspondence that the parties had both reached the view, two weeks prior to the commencement of the hearing, that an appropriate outcome of the proceedings would be that the winding up application be dismissed and there be leave granted to bring the derivative action (which was the outcome in the Primary Judgment). 4. However, the parties were unable to achieve a resolution on that basis and the matter went to a hearing on all issues. 5. This does not provide a reason for awarding costs in WAM Active's favour. If anything, it underlines the conclusion that costs should follow the event. 6. It was open to WAM Active, consistently with the terms of its offer, to indicate to the Court at the start of the hearing that it was not pressing its winding up application; that it was seeking leave to bring the derivative action, which was not opposed; and that the only issues which remained to be determined in the proceedings between WAM Active and Keybridge was the issue of costs. Had WAM Active done so, the proceeding would likely have been concluded on the first morning. 7. Instead, the hearing ran for three days, because WAM Active decided, after its offer was not accepted, to pursue its winding up application on all grounds. 8. In circumstances where WAM Active chose to take that course and failed on its winding up application on all grounds, costs should follow the event. 9. Thirdly, WAM Active submitted that although Keybridge succeeded in opposing the winding up application, Keybridge failed on two separable issues, namely, its allegation that WAM Active's application for a winding up order was an abuse of process and its application to be released from an undertaking not to raise capital until further order of the Court. 10. Generally, a successful party should have the whole of its costs of the proceedings, including costs on an issue on which it has failed. However, in an appropriate case, a costs order may be formulated to reflect the degree of success on distinct issues. Relevant circumstances in which apportionment across different issues has been said to be appropriate include where a successful party has, in respect of one or more issues, unfairly, improperly or unnecessarily increased costs; where the bulk of the time has been taken on an issue on which the unsuccessful party has succeeded; or where a particular issue or group of issues is clearly dominant or separable: see Access Training Group Ltd v Jane [2024] NSWCA 204 at [190]-[191] (Ward P, Payne JA agreeing). 11. A separable issue can relate to any disputed question of fact or law before a Court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA). 12. Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends on matters of impression and evaluation: ibid. 13. The abuse of process allegation was a disputed question of fact or law on which Keybridge failed. 14. Significant time at the hearing was occupied on this issue. It accounted for the majority of the cross-examination of WAM Active's witnesses, which took place, in total, over one of the three hearing days. Likewise, the majority of Keybridge's documentary tender was directed to this issue. It was a substantial focus of written and oral submissions. At the hearing, the time spent on this issue was greater than the time spent on, for example, the issue of winding up in insolvency (given that neither of the expert witnesses was cross-examined). 15. On this costs application, Keybridge contended that the allegations regarding abuse of process were relevant to any consideration whether the Court should grant relief in the event that oppressive conduct was established. However, the issue of abuse of process went to whether the Court should entertain the application at all. If this contention was upheld, I would not have gone on to consider the other issues in the proceeding, including oppression. 16. As mentioned above, WAM Active also relied on the fact that there was time spent on the first morning of the hearing on Keybridge's unsuccessful application to be released from the undertaking not to raise capital. However, this was comparatively minor in scope and I would not apportion costs by reason of this application. 17. For the reasons given above, I have determined there should be some departure from the general rule that costs follow the event in order to reflect that significant costs were incurred on the separable issue of abuse of process, on which Keybridge failed. Adopting a broadbrush approach, the appropriate order is that WAM Active pay 70% of Keybridge's costs. Indemnity costs 1. It is then necessary to consider whether there is a basis for awarding Keybridge any of its costs on an indemnity basis. 2. In support of its application for indemnity costs, Keybridge referred to the statement of principles by Black J in In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8]. From that passage of his Honour's judgment, the following matters are of particular relevance for the present application: 1. costs are awarded on the ordinary basis, unless there are exceptional circumstances; 2. an order for indemnity costs may be made when the Court takes the view that it was unreasonable for the unsuccessful party to have subjected the successful party to the expenditure of costs; and 3. whether an indemnity costs order should be made depends, at least in part, on whether there has been a relevant delinquency on the part of the unsuccessful party. 24 March 2024 onwards 1. Keybridge's primary position was that indemnity costs should be awarded from 24 March 2024 onwards. In this regard, it relied on two pieces of correspondence dated 20 March 2024 and 24 March 2024. 2. On 20 March 2024, Keybridge's then solicitor sent an email to WAM Active's solicitors asserting that Keybridge was solvent and offering that Keybridge would pay the debts which were the subject of the Statutory Demand, on the basis that the winding up application be dismissed. 3. On 24 March 2024, Keybridge's solicitor sent an open letter stating that Keybridge was solvent by reference to its financial statements for the half-year ended 31 December 2023, and sent a letter marked as "Without prejudice except as to costs" in which it was said that Keybridge "will likely remain amenable for a short while longer to the possibility of resolving the winding up application on the basis of the 20 March 2024 offer" and requesting that "if your client wishes to pursue such a resolution, please let us know." 4. I do not consider that these communications provide a basis for an award of indemnity costs. 5. First, the letter of 24 March 2024 did not make an offer, but instead indicated that Keybridge would "likely remain amenable" for an undefined "short while longer" to "the possibility" of pursuing settlement on a particular basis. 6. Secondly, while the email of 20 March 2024 made an offer, it did not address the costs of the winding up application and was not expressed to be without prejudice except as to costs. 7. Thirdly, the email of 20 March 2024 was sent in circumstances where there were judgment debts against Keybridge in WAM Active's favour; where there was no stay in respect of those judgment debts; where WAM Active had issued the Statutory Demand in respect of those judgment debts; and where Keybridge had failed to set aside that Statutory Demand. The appropriate course of action for Keybridge was not to offer to pay those undisputed debts, but to pay those debts. 8. In Lavercombe, Barrett J referred (at [47]) to the following statement by Gibbs J in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 at 427: "The authorities show that as a general rule a creditor who cannot obtain payment is, as between himself and the company that owes the debt, entitled to a winding-up order as a matter of right." 1. Barrett J observed that where a statutory demand had been served, not set aside and not paid, the creditor would understandably and properly see himself as a creditor, who cannot obtain payment within the meaning of that passage (at [47]). On that basis his Honour held (at [48]) that the petitioning creditor whose debt had not been paid was justified in making and pursuing an application for winding up and was not acting unreasonably in doing so (despite the defendant's submissions that the creditor would have known that the defendant was in fact solvent). 2. Those observations are applicable here. In circumstances where the undisputed judgment debts remained unpaid, WAM Active was not acting unreasonably in pursuing its winding up application after 20 March 2024 and there was no relevant delinquency on its part to justify an order for indemnity costs. 2 May 2024 onwards 1. Secondly, Keybridge relied on a Calderbank offer made on 2 May 2024. The terms of this offer were that the winding up application be dismissed and WAM Active pay Keybridge's costs on the ordinary basis. 2. I do not consider this offer provides a basis for the award of indemnity costs from the date it was made. 3. First, there was no element of compromise. The May 2024 letter sought, in effect, a complete capitulation, with WAM Active's application being dismissed and WAM Active being obliged to pay costs. 4. Secondly, it remained the case as at early May 2024 that Keybridge had not paid the debts which were the subject of the Statutory Demand. In the May 2024 letter, Keybridge did not offer to pay those debts. Instead, Keybridge's offer required that WAM Active agree not to take any step to enforce those debts pending the delivery of the decision of a review panel regarding the costs assessments which were the subject of the judgment debts. This, in effect, sought that WAM Active agree not to enforce judgment debts, in circumstances where Keybridge had not obtained a stay of those debts. 5. Further, in making this offer, Keybridge did not disclose that the review panel had indicated that it would not deliver its decision until its invoice, which had been delivered to Keybridge, was paid. Keybridge did not undertake to WAM Active to pay any such invoice and, as matters transpired, Keybridge did not pay the invoice, and the review panel's assessment was therefore not delivered, for another five months. 6. In those circumstances it was not unreasonable for WAM Active to reject the May 2024 offer. October 2024 onwards 1. Finally, Keybridge sought indemnity costs from the beginning of October 2024. There was no offer made by Keybridge on or around that date. Instead Keybridge contended that, by this date, WAM Active had received the report of its expert, Mr Olde, and should have concluded that its winding up application was doomed to fail. 2. I do not accept this submission. 3. By early October 2024 the winding up application was pursued on three bases: in insolvency; on the just and equitable ground; and on the basis of oppressive conduct. Even if Mr Olde's report had established solvency that would not have meant that the winding up application on the other two bases was doomed to fail. In any case, Mr Olde expressed the opinion that Keybridge was insolvent. 4. Further, in concluding in the Primary Judgment that Keybridge was solvent, I took into account a number of events which occurred after the date of Mr Olde's report, namely: the payment of WAM Active's judgment debts; the payment of other undisputed debts; the reduction in aged payables up to the date of the hearing; the filing of evidence from Mr Patton regarding the reduction in aged payables, the basis on which debts were disputed, and the liquidity of the securities held by Keybridge; the drawing down of funds under an intercompany loan with Yowie; the steps taken by Keybridge to raise capital in October 2024 and the response by shareholders; and the entry in November 2024 into an indicative term sheet regarding a bridging facility. Those were all matters which were relevant to the conclusion that, as at the hearing dates (11-13 November 2024), Keybridge was solvent. 5. Given that is so, I do not consider it can be said that, at a point in time before those events occurred, the application to wind up Keybridge in insolvency was doomed to fail. 6. It follows that I reject Keybridge's application for indemnity costs. CONCLUSION & ORDERS 1. For the reasons outlined above, I have determined that: 1. WAM Active's costs for the application for leave to bring the derivative action should be costs in the cause in the derivative suit; and 2. WAM Active should pay 70% of Keybridge's costs of the proceeding on the ordinary basis. 1. Keybridge sought, and WAM Active did not oppose, leave to proceed with an assessment of such costs forthwith. WAM Active likewise sought, and was granted, leave to proceed forthwith to the assessment of two costs orders previously made in its favour in this proceeding. 2. Following the hearing in relation to costs, the parties sent up short minutes of order which incorporated the findings set out above into the form of orders which had otherwise been agreed so as to give effect to the findings in the Primary Judgment. 3. Accordingly, the Court made the following orders. 1. Pursuant to r 6.24(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), order that the following persons or entities be joined as the Third to Fifth Defendants respectively to this proceeding: 1. Crotto del Nino S.r.l. 03205830130; 2. Frank Antony Catalano; and 3. John Dean Patton. 1. On the undertaking given by the Plaintiff to pay the First Defendant's costs of the claims (and to indemnify the First Defendant in respect of any costs orders made against it in pursuing the claims), pursuant to s 237 of the Corporations Act 2001 (Cth), grant leave to the Plaintiff to bring proceedings on behalf of and/or in the name of the First Defendant against each of the Second to Fifth Defendants, with respect to the claims in paragraphs 1-42 of the Statement of Claim filed 3 October 2024 (without the need for the Plaintiff to commence fresh proceedings). 2. The Plaintiff's claims against the First Defendant in its Amended Originating Process and for oppression and winding up in prayers 3 and 10 to 13 and paragraphs 43 to 47 of the Statement of Claim otherwise be dismissed. 3. The Plaintiff pay 70% of the First Defendant's costs of the proceedings to date, as agreed or assessed on the ordinary basis. 4. Pursuant to r 42.7(1) of the UCPR, the costs the subject of order 4 above are to include, without limitation, any application or other step in the proceedings to date in which costs were reserved or no order as to costs was made. 5. Pursuant to r 42.7(2) of the UCPR, the First Defendant has leave to proceed to assessment of the costs referred to in order 4 forthwith. (6A) Order that the costs orders made in favour of the Plaintiff against the First Defendant on 12 August 2024 and 10 September 2024 remain extant and the Plaintiff has leave to proceed to assessment of those costs forthwith (with those costs permitted to be offset against the costs ordered to be paid to the First Defendant in order 4 above). 1. The Plaintiff's costs of the following matters be the Plaintiff's costs in the cause against the Second to Fifth Defendants: 1. the Plaintiff's written and oral submissions on the application for leave under s 237 of the Corporations Act 2001 (Cth); 2. the affidavit of Jesse Michael Hamilton sworn 15 September 2024; 3. any filing fees paid by the Plaintiff in respect of the interlocutory process filed 20 September 2024; and 4. the Plaintiff's application on 20 September 2024 for freezing orders against Mr Bolton and any subsequent hearings for the extension or variation of those freezing orders. 1. List the matter for directions in the Corporations List on 10 February 2025 at 10.00am. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 December 2024