New South Wales Supreme Court CITATION : Hugh Morrow & Ors v Chinadotcom Corporation & Ors [2001] NSWSC 193 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 1690/2001 HEARING DATE(S) : 12 and 15 March 2001 JUDGMENT DATE : 23 March 2001 Hugh Morrow (First Plaintiff) Think New Media Pty Limited (Second Plaintiff) Parree Pty Ltd (Third Plaintiff) PARTIES : G Thomas Nominees Pty Ltd (Fourth Plaintiff) Chinadotcom Corporation (First Defendant) The Persons Identified in Schedule A of the Summons Trading as Ernst & Young (Second Defendant) XT3 Pty Limited (Third Defendant) JUDGMENT OF : Bergin J T Castle (Plaintiffs) COUNSEL : RBS MacFarlan QC/ Dr AS Bell (First Defendant) C Moore (Second Defendant) Atanaskovic Hartnell (Plaintiffs) SOLICITORS : Allen, Allen & Hemsley (First Defendant) Clayton Utz (Second Defendant) CATCHWORDS : Application for costs of Notices of Motion. DECISION : See paragraphs 25 and 26. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BERGIN J DATE: FRIDAY 23 MARCH 2001 1690 of 2001 - HUGH MORROW & ORS v CHINADOTCOM CORPORATION & ORS JUDGMENT 1 This matter was commenced on 7 March 2001 when the plaintiff was granted leave by Santow J to file a Summons and Notice of Motion returnable before me in the Duty List on 12 March 2001. Nature of the Proceedings 2 The plaintiffs are directors of the third defendant XT3 Pty Ltd (XT3). XT3 entered into a Stock Purchase Agreement (the Agreement) with the second defendant Chinadotcom Corporation (CC) in May 2000. The Agreement was amended on about 5 September 2000 (the Amended Agreement). 3 The Amended Agreement provides a mechanism for acquisition by CC of the plaintiffs' shares in XT3. Part of that mechanism is the delivery of an Accountant's Report to CC in respect of revenues of XT3 (the Report). The payment by CC for such acquisition is to be made within a certain period after the delivery of the Report. The Accountants are the second defendants in the proceedings, the persons identified in the Schedule to the pleadings trading as Ernst & Young (Ernst & Young). Motion on 12 March 2001 4 The plaintiffs claimed that the production of the Report had been delayed by improper interference by CC and sought two orders in the Notice of Motion as follows: 5 An order until further order restraining the first defendant, by itself, its servants and agents, from interfering with the delivery by the second defendant of the Accountant's report of the Second Tranche Audited Results to the third defendant in accordance with the Stock Purchase Agreement between the plaintiffs, the first defendant, the third defendant and others dated 25 May 2000. 6 An order until further order restraining the first defendant, by itself, its servants and agents, from giving any instructions or directions either oral or in writing to the Second defendant not to complete, issue, release and/or deliver to it the Revenue Report referred to in the letter from the third defendant to the Second defendants dated 23 February 2001. 5 I refused to make those orders for the reasons given in my judgment of 12 March 2001. On 8 March 2001 CC advised Ernst & Young by letter that it had no objection to the release of the Report. A copy of that letter was provided to the plaintiffs. A further matter which had been an apparent impediment to Ernst & Young producing the report was the date of release of the financial results of CC for the fiscal year 2000. The evidence disclosed these were to be released on 14 March 2001. 6 The plaintiff did not seek orders against Ernst & Young on 12 March 2001, however they called on a Notice to Produce. Mr Moore, who appeared for Ernst & Young indicated that his clients were not in a position at that time to produce the documents and that they were of the view that the Notice to Produce would "fall away" by reason of there being no cause of action disclosed in the pleadings. At that time the plaintiff had yet to file a Statement of Claim for which it was granted leave on that day. 7 Ernst & Young were granted leave to file a Notice of Motion in Court on 12 March 2001 seeking an order that the proceedings against them be dismissed pursuant to Part 13 Rule 5 and orders of similar effect. I did not hear that Motion on that day and ordered Ernst & Young to produce the documents pursuant to the Notice to Produce informally by 4 pm on 13 March 2001. I stood the Notices of Motion of the plaintiff as against Ernst & Young and Ernst & Young's Notice of Motion over to 2 pm on 15 March 2001. It was noted that it may no longer be necessary to hear those Motions on 15 March 2001 by reason of the filing of a Statement of Claim. 8 CC and Ernst & Young seek orders for costs in their favour of the hearing on 12 March 2001. 9 The plaintiffs sought to adjourn the hearing of the Motion until the documents had been produced by Ernst & Young pursuant to the Notice to Produce. I disallowed that course having regard to the fact that the Motion had been specifically listed for hearing before the Duty Judge on 12 March 2001, senior and junior counsel were briefed for CC, and Mr C Moore appeared for Ernst & Young. 10 CC submitted that the plaintiff sought the interlocutory relief without proper notice to it. On 8 March 2001 CC's solicitors wrote to the plaintiffs' solicitors enclosing a copy of the letter to Ernst & Young in which it advised that it had no objection to the release of the report. CC's solicitors advised the plaintiffs' solicitors that it would seek to recover indemnity costs if the plaintiffs did not discontinue the proceedings immediately. 11 CC submitted that the application for interlocutory relief was a deliberate decision which was quite unnecessary and in all the circumstances unreasonable. I am not satisfied that the application was unreasonable. The plaintiffs had received information from Ernst & Young that they had been "instructed" by CC not to issue the Report until CC's financial reports had been issued. This gave a basis for concern to the plaintiffs which in my view was a reasonable basis upon which to approach the Court for orders. It is what occurred in Court that persuaded me not to exercise my discretion in the plaintiff's favour on that occasion. 12 CC was given some notice that the plaintiffs intended to approach the Court for orders. That is apparent from the plaintiffs' solicitor's letter of 27 February 2001. It is also clear that CC responded suggesting to the plaintiffs' solicitors that any application was "premature". Certainly by the time the Motion was listed for hearing the plaintiffs were concerned that the matter would be more appropriately heard after the documents had been produced by Ernst & Young. 13 It became apparent on 15 March 2001 that there had been some communications between Ernst & Young and CC and within Ernst & Young that suggest that Ernst & Young may have been looking for an "excuse" not to produce the Report. This material was not available to the plaintiff and not in evidence before me on 12 March 2001. 14 It is true that the plaintiffs did not succeed in obtaining orders against CC on 12 March 2001, however having regard to all the circumstances of the case, I am of the view that the most appropriate costs order to make in respect of the hearing of the Motion as against CC on 12 March 2001 is that CC's costs be its costs in the cause. 15 Ernst & Young seek indemnity costs for the hearing on 12 March 2001. On that day Mr Moore informed the Court that Ernst & Young would issue to XT3 a separate engagement letter and that once that letter was signed they would issue the Report. Thus the position changed quite dramatically in that although the previous "impediments" had been removed (CC had indicated no objection and CC's financial reports were to be published on 14 March 2001) a new prerequisite was required prior to the issuing of the Report. The plaintiffs heard of that for the first time in Court on 12 March 2001. 16 Having regard to that fact and the absence of any documents being produced pursuant to the Notice to Produce, I am not satisfied that it is appropriate to make any costs order against the plaintiffs in respect of Ernst & Young's costs of 12 March 2001. I am satisfied that the appropriate order is that the plaintiffs and Ernst & Young pay their own costs of the Motion 15 March 2001 17 The plaintiffs were granted leave to file an Amended Notice of Motion in Court on 15 March 2001 and sought the following orders: 2. An order until further order restraining the first defendant by itself, its servants and agents, including without limitation any member or employee of Ernst & Young Hong Kong, from engaging in any communication with any member or employee of the second defendant in relation to any of the matters arising under or in relation to the retainer referred to in paragraph 10 of the Statement of Claim filed herein, including without limitation any matter associated with the preparation, finalisation or delivery of the Accountant's Report referred to in paragraph 6(b) and/or 11 of the Statement of Claim unless, to the extent that such communication is in writing a copy of that communication is sent to the solicitors for the plaintiffs or to the extent that any such communication is oral the plaintiffs by themselves or their solicitors are present whilst any such communication takes place. 3. An order until further order restraining the second defendants by themselves, their servants and agents, from engaging in any communication with any employee, servant or agent of the first defendant, including without limitation any member or employee of Ernst & Young Hong Kong in relation to any of the matters arising under or in relation to the Retainer referred to in paragraph 10 of the Statement of Claim filed herein, including without limitation any matter associated with the preparation, finalisation or delivery of the Accountant's Report referred to in paragraphs 6(b) and/or 11 of the Statement of Claim unless, to the extent that such communication is in writing a copy of that communication is sent to the solicitors for the plaintiffs and to the extent that any such communication is oral, the plaintiffs by themselves or their solicitors are present whilst any such communication takes place. 18 I refused to make the orders sought for the reasons given in my judgment of 15 March 2001. However I ordered CC to provide a copy of any written instruction or communication to Ernst & Young and Ernst & Young Hong Kong in respect of the Report, to the Board of XT3 within 24 hours of such communication. That order was varied on 20 March 2001 so that CC has an obligation to produce a record of any oral or written communication (excepting certain communications) to the plaintiffs' solicitors in respect of the matters relating to the Report. There was no separate order made in relation to Ernst & Young. 19 CC and Ernst & Young seek costs orders in their favour for the hearing of the Motion on 15 March 2001. Ernst & Young seeks orders on an indemnity basis. 20 This matter has progressed rapidly since 7 March 2001. There has been filed a Summons, a Statement of Claim and two Amended Statements of Claim. There have been three Notices of Motion filed and numerous affidavits in support thereof. There have also been a number of Notices to Produce with various claims for privilege. It is obvious that the parties have been moving urgently to seek orders to facilitate compliance with the Agreement and secondly to meet the claims made against them and produce documents pursuant to Notices to Produce at very short notice. 21 It is true that the orders sought by the plaintiffs were not made on 15 March 2001. The evidence relied upon on 15 March 2001 included communications which contained references to there being "an excuse" for not producing the Report. These communications understandably gave some concern to the plaintiffs. Although I did not make the orders in the Notice of Motion I was satisfied on the evidence that it was appropriate to require copies of the communications to be provided to the plaintiffs within 24 hours. 22 I did not make any separate order in relation to Ernst & Young, however the order I made in respect of CC will bring forth copies of those communications and if not, alert the plaintiffs to such communications that have occurred between Ernst & Young and CC. 23 The plaintiffs have had some measure of success as has CC. In those circumstances I am satisfied that the plaintiffs and CC should pay their own costs of the Notice of Motion of 15 March 2001. 24 Although no separate order was made against Ernst & Young, the communications which gave rise to the exercise of my discretion in favour of making the orders against CC were those contained in the emails of Ernst & Young. It was in any event necessary for Ernst & Young to be before the Court on 15 March 2001 in respect of the Motion filed by them on 12 March 2001 which had been stood over for hearing to 2 pm that day. That Motion was not proceeded with. The orders that I made against CC will effectively allow the plaintiffs to monitor Ernst & Young's communications. In all the circumstances I am satisfied that the plaintiffs and Ernst & Young should pay their own costs of the Notice of Motion. Orders 25 I order that in respect of the Motion heard on 12 March 2001: 1. The first defendant's costs of the Motion of 12 March 2001 to be its costs in the cause. 2. The plaintiff and the second defendant are to pay their own costs of the Notice of Motion. 26 I order that in respect of the Motion heard on 15 March 2001 all parties pay their own costs. ********** Last Modified: 09/03/2001 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.