Cultus Petroleum v OMV Australia [1999] NSWSC 435

New South Wales Supreme Court CITATION : Cultus Petroleum v OMV Australia [1999] NSWSC 435 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 2179/99 HEARING DATE(S) : 07/05/1999 JUDGMENT DATE : 7 May 1999

PARTIES : Cultus Petroleum NL (ACN 009 102 505) (P) OMV Australia Pty Ltd (ACN 082 932 927) (D) JUDGMENT OF : Santow J

COUNSEL : R J Powell (P) P L G Brereton, SC; M A Robinson (D) SOLICITORS : Allen Allen & Hemsley (P) Freehill Hollingdale & Page (D) CATCHWORDS : COSTS — Indemnity costs versus party and party — Awarded in takeover context where proceedings unsuccessfully brought based on extremely weak case — Relevant factors pointing to ulterior purpose — Relevance of abandoning actions or points — Relevance of public statements post litigation being accurate and not misleading. ACTS CITED : Supreme Court Act 1970 s76 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 43 FCR 225 CASES CITED : Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers WA Branch (No. 2) (1993) 46 IR 301 DECISION : Indemnity costs granted to the Defendant

REVISED— 7 May 1999

IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

SANTOW J

No. 2179/99 CULTUS PETROLEUM NL (ACN 009 102 505) Plaintiff OMV AUSTRALIA PTY LTD (ACN 082 932 927) Defendant

JUDGMENT — Ex Tempore 7 May 1999

1 Following my earlier judgment of 5 May 1999 dismissing the Plaintiff's Summons, it remains to deal with costs. The only issue is whether I should, in the circumstances of this case, depart from the normal rule and award costs on the more generous indemnity basis rather than the usual party and party costs. This is pursuant to the court's inherent power in that behalf and under s76 of the Supreme Court Act 1970. 2 The discretion to award indemnity costs arises in limited categories of case. I am not here concerned with that category where an offer of compromise is declined where the judgment later entered is no less favourable than the original offer. Nor am I concerned with the category of case where the Defendant has disputed a fact which is later proved or admitted. It is the inherent jurisdiction which is in point. It is exemplified by persisting in proceedings which have no reasonable prospect of success or commencing or continuing proceedings for some ulterior motive, often borne out by the lack of any real substance in the case itself. As was said by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 43 FCR 225 at 234 (quoting from the decision of French J in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, WA Branch (No. 2) (1993) 46 IR 301 at 303): "Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, the party persists in what should on proper consideration be seen to be a hopeless case." 3 The relevant principles are conveniently assembled in the judgment of Rolfe AJA in Huntsman Chemical Co Australia Ltd v International Pools Australia Pty Ltd (1995) 36 NSWLR 242 at 271-3. (He was in dissent, but the principles were not questioned.) 4 For present purposes I am here concerned with the earlier mentioned two sub-categories within the inherent jurisdiction of the court, namely that the proceedings had no reasonable prospect of success or the proceedings have been commenced or continued for some ulterior or collateral purpose. 5 To express the sub-categories in this way is not to suggest that they are necessarily capable of being viewed as totally distinct in their application. It may be that a case is a very weak one but just falls short of being hopeless; the present case is just such a borderline one. Yet that fact, when coupled with the lateness with which the challenge is mounted, may in the particular circumstances of the case point to an ulterior purposes of the kind that should warrant the award of indemnity costs. That is what I say occurred here, for reasons which I now elaborate. 6 Turning to the circumstances presently before me, at para 77 of my earlier judgment of 5 May 1999 I said: "There has developed a pattern in takeover defences in indulging in wasteful and expedient tactical litigation, designed not for the benefit of ensuring that shareholders are properly informed but simply to buy time. To issue proceedings such as this at the last minute casts doubt upon the bona fides of the Plaintiff, an impression reinforced by a number of other grounds raised and subsequently abandoned as to the alleged misleading nature of the Part A Statement. That is not to say that in a proper case where a Part A statement is misleading the target should not take proper action promptly to restrain the sending out of the offer or at any rate restrain it until appropriate additional material has been included. This was not such a case." 7 The Plaintiff originally advanced seven grounds for complaint, abandoned five in this Court though pursuing one in the AAT, leaving but two. It would be going too far to say that those two grounds constituted a hopeless case though for the reasons set out in my judgment I considered that the case was extremely weak. 8 As to timing, the Part A, the subject of the Plaintiff's attack, was served on 19 April 1999. Proceedings for an injunction require prompt action. Yet those proceedings were only commenced on 30 April 1999, including claims later abandoned. This was said by Counsel to-day, from the bar table, to be the result of the complexity of the litigation reflecting some question, which the Plaintiff needed first to resolve, as to whether and when the Defendant first received the Information Memorandum said to include the confidential information. However, it appears that the Plaintiff never asked the Defendant, or indeed Gulf, that question, but worked the position out for itself. That is not surprising. The Plaintiff must have known from the Part A that the Defendant had also sought information concerning the purchase of the Gulf assets. Thus it would be extraordinary if the Defendant had not received the Information Memorandum, even if the timing were an issue — though even that seems hardly likely, in view of para 2.4 of the Part A. But even if timing were the issue, prompt enquiry should have clarified the matter, if not from the Defendant then from Gulf. 9 The Plaintiff has had the benefit of expert advice from a leading law firm. Like the plaintiff in Huntsman Chemical (supra) at 271 "…… the litigation was commercial litigation and parties who and which engage in it are taken, generally speaking, to be aware of the commercial ramifications of what they are doing." The Plaintiff must therefore be taken to be aware that the timing of the dispatch of a Part A offer earlier served and registered is dependent upon the Defendant having the opportunity to resolve any challenge to it. That means the challenge should not be unreasonably delayed. It was in my view, totally within the control of the Plaintiff to have brought the injunction proceedings earlier in time to enable the injunction proceedings to be resolved, one way or the other. It chose not to do so for reasons which can reasonably be inferred to have been associated with attempts to find other bidders and to prevent the Defendant's Part A being dispatched at all. 10 While, in my view, the foregoing circumstances are sufficient to justify the conclusion that the Plaintiff's proceedings were brought for an ulterior purpose and not in good faith, it is not without relevance that Cultus issued a press release on 6 May 1999 which contained these paragraphs in particular which I quote below: "Cultus Chairman Mark Dunphy said Cultus had taken legal action because its Board felt that Cultus shareholders may have been disadvantaged had there not been clarification of a number of issues in OMV's Part A offer. …… The court decided the relevant information in OMV's possession did not need to be disclosed in the Part A statement. The information remains confidential until it has been fully considered by the Joint Venture participants. Cultus expects to be authorised to disclose the information in its Part B statement following discussions with the other Joint Venture participants." 11 I expressed concern to-day that the first quotation is hardly consistent in its suggestion of merely seeking clarification of issues raised by the Part A, when the evident purpose of the proceedings was to obtain a final injunction preventing the dispatch of OMVA's offer altogether. It is true the Plaintiff put its case then on alternative bases that would have permitted dispatch, if supplemented by the alleged confidential information. But clearly enough the Plaintiff's primary submission was that the Part A offer could never be dispatched for so long as the relevant information remained confidential. 12 There was no suggestion that the Plaintiff would itself release the relevant information in the absence of a valid Part A offer. Indeed to the contrary, it was asserted by Plaintiff's Counsel on the first day of the hearing that the relevant information would, or could, be included in a Part B response only upon receipt of a valid Part A offer but then it would be released. 13 That leads to my concern about the second of the quoted paragraphs from the Press Release. The second sentence, probably unintentionally, may suggest that the court decided what the second sentence says, when in fact that was not said anywhere in my judgment. Of particular concern though is that it clearly implies that authorisation of the joint venture participants is legally required before Cultus could disclose the information in its Part B statement, though it "expects to be authorised". That supposed need for authorisation was not mentioned by way of qualification when the statements in 12 above were made in Court. Indeed it could not have been, because the joint venture would then clearly permit such inclusion in the Part B, where Cultus is required by applicable law, namely s750 of the Corporations Law to include such information, though confidential, drawing upon its additional knowledge from the joint venture, where it is (a) material, and (b) can be substantiated so not misleading. 14 It is for Cultus to ensure that any statements it issues both accurately state the effect of the Court's decision and in a way that is not capable of being misleading. Similarly Cultus must accurately state, without being misleading, the position concerning the ultimate release of the relevant information in its Part B statement. It is important that any misleading impression be corrected. For present purposes it is simply appropriate that I note that the press release is, at the least, not inconsistent with the ulterior purpose to which I have earlier made reference. 15 It follows that in the circumstances of this case the exceptional jurisdiction of the Court to award indemnity costs should be exercised. It is important that the courts give a clear signal that tactics reflected in that ulterior purpose are not to be rewarded by merely putting at risk party and party costs. I should add that the vice does not lie in the litigation being tactical — litigation often is. Rather the vice lies in the lack of bona fides or legitimacy reflected in the delay in presenting what was undoubtedly a weak case, knowing that shareholders could thereby be deprived of a bid or have it delayed by the litigation. This was a bid that currently maintained the share price of Cultus and was the basis of trading in its stock. In Huntsman Chemical, though concluding that an indemnity cost order was not warranted, Kirby P (at 246) recognised the appropriateness of indemnity cost orders as conveying a salutary message: "An indemnity cost order would send a salutary message as a consequence of its being made in a case such as the present. That message would be that litigants, at least in commercial cases such as the present, run the risk, in hopeless appeals, that the full commercial costs of their litigious adventure will be transferred, by order of the court, to the party or parties bringing such a hopeless appeal (or an appeal on grounds which are hopeless). The Court is entitled, in modern circumstances of enlarged attention to the efficient administration of justice, to keep in mind the consequence of an indemnity costs order not only for the particular parties before it but for the signal which it sends about the due administration of justice in like cases: cf Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323 at 328." 16 I should add that abandonment of unwinable appeals or points, while not to be discouraged by indemnity cost orders as Kirby P said in Huntsman Chemical (supra) at 247, nonetheless may, with other circumstances present here, point to a weak case or an ulterior purpose, or both.