Araujo v Ready Fence (NSW) Pty Limited No 2 [2012] NSWSC 931

Supreme Court New South Wales

Medium Neutral Citation: Araujo v Ready Fence (NSW) Pty Limited No 2 [2012] NSWSC 931 Hearing dates: 7 August 2012 Decision date: 15 August 2012 Jurisdiction: Equity Division Before: Associate Justice Macready Decision: I order that the plaintiffs pay one-third of the defendants' costs incurred after 21 April 2011. Catchwords: COSTS - where consent orders made prior to trial resolving some issues in dispute - attempts to settle remaining disputes prior to trial - six day trial - plaintiffs' expert witness fell into error and ultimately not relied upon to a large extent by plaintiffs - plaintiffs' expert cross-examined for two days - plaintiffs to bear part of defendants' costs after date of final consent orders Legislation Cited: Civil Procedure Act 2005 Corporations Act 2001 (Cth) Cases Cited: Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 Cassegrain v CTK Engineering (2005) 54 ACSR 249 One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548 Category: Costs Parties: Frances Araujo (First Plaintiff) John Hicks (Second Plaintiff) Ready Fence (NSW) Pty Ltd (First Defendant John Callaghan (Second Defendant) David Grant (Third Defendant) Representation: C M Harris SC (Plaintiffs) A A Henskens SC (Defendants) Grech Partners (Plaintiffs) Middletons (Defendants) File Number(s): 2010/00144505

Judgment (As to costs) 1This is the hearing to determine the costs consequences arising out of the judgment which I gave in this matter on 4 May 2012 in Araujo v Ready Fence (NSW) Pty Limited [2012] NSWSC 420. 2I will not repeat the detail of the history of the matter which is set out in that judgment. 3The application which is made to me by the plaintiffs is that the defendants pay the plaintiffs' costs of the proceedings up until 21 April 2011 and that thereafter each party bear their own costs. 4The defendants submitted that the plaintiffs should be required to pay 50 per cent of the defendants' costs of the proceedings and meet their own costs. Alternative cases were suggested including each party should pay their costs until 21 April 2011 and thereafter the plaintiffs pay 50 per cent of the defendants' costs. 5In order to understand these matters it is appropriate to recall the short chronology. In March 2010, the company passed resolutions made by Mr Callaghan, the sole director, in the belief that Mr Hicks had resigned as the director for the purpose of raising capital and the issue of further shares. Although the parties had obviously fallen out, there was no pre-litigation offer to purchase Mr Hicks' shares and, accordingly, proceedings were commenced on 9 June 2010. The proceedings sought to set aside the capital raising, sought a declaration that the affairs of the company had been conducted oppressively and that the company be wound up on the just and equitable ground or, alternatively, for oppression. This latter claim would have allowed a purchase of shares. 6By 21 February 2011, the defendants lay evidence was served and shortly thereafter the parties agreed to consent orders which led to the hearing before me. 7Consents orders were made on 14 March 2011 and modified on 21 April 2011. A copy of the modified orders is attached to my judgment. 8As a result of those consent orders, the capital raisings were set aside, it was declared that the affairs of the company had been conducted in an oppressive way and gave effect to a mechanism for the determination of the value of the shares of the plaintiff by the court and for various rights of purchase once that determination was made. 9In the hearing, the plaintiffs maintained a stance that the value of the shares was $1.9 million, the defendants maintained that the shares had no value and in my judgment I determined the value of the relevant shares at $598,277. 10The basis of the plaintiffs' claim is that, after the defendants finally served their affidavits on 21 February 2011, they capitulated and agreed to orders being made setting aside the steps they had taken. It was submitted that they effectively surrendered to the plaintiffs and for this reason they ought to pay the plaintiffs' costs of the proceedings up until 21 April 2011. 11Reference was made to One.Tel Limited v Commissioner of Taxation (2000) 101 FCR 548 at [6] and Cassegrain v CTK Engineering (2005) 54 ACSR 249 at [10]. The plaintiffs also suggested that, since they were likely to succeed on the winding up because of the oppression, they should have their costs. 12In One.Tel Limited, Burchett J distinguished between cases where there is a "clear winner" to whom the other party surrenders, despite the absence of a hearing, and cases where some supervening event, beyond the control of the parties, renders the litigation futile. His Honour determined that the case before him fell into the first type of case and the successful party was entitled to its costs (at [7], [9]). However, neither category identified in One.Tel Limited can be precisely defined and the variety of relevant factors renders it difficult to reduce the exercise of discretion by characterisation of the reason for discontinuance (or in this case, partial resolution of the issues in dispute): Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 per Basten JA at [81]. 13The plaintiffs took the view that as there was a genuine dispute about the value of the shares, once the position was reached that the court was to determine that value, there should be no order as to costs, to the intent that each party bear their own costs of the hearing after 21 April 2011. 14The defendants, for their part, dealt with the question of costs in respect of two separate areas. In respect of the period up to 21 April 2011, it suggested that the evidence clearly disclosed that the defendant had been endeavouring to reach a settlement on the amount of the purchase price for the shares, it being obvious that a purchase should be the ultimate result. They also endeavoured to avoid additional costs which were ultimately forced on them by the plaintiffs. 15In respect of the period after 21 April 2011, their submissions referred to the way the plaintiffs ran the case at the trial, which included an abandonment of their own expert, and a waste of time and expense in the way the case was finally presented in submissions at the conclusion of the hearing. 16I turn to the first question, namely, the conduct of the parties up until the time when the parties were agreed on short minutes on 21 April 2011. 17In August 2010, there was a proposal from the defendants that there be an informal settlement conference to try to resolve the matters. That proposal was rejected by the plaintiffs on the basis that the conference was premature as they had not received points of defence or affidavit evidence from the defendants. 18From 29 September 2010, an offer was made to purchase the plaintiffs' shares and pay out the plaintiffs' loan account in an amount of $610,000 plus costs. The supporting accounts were attached from the company's external accountant. That offer was repeated on 1 October 2010 and then there was a request from the plaintiffs for further information. This led to a supply of a MYOB printout of the company's accounts. Those offers were rejected on 18 October 2010. The plaintiffs suggest that the matter be resolved by executing the short minutes by making orders which would refer the purchase price to the court to determine. 19The matter came back before the court on 1 November 2010 and in discussions between the representatives in court that day, the plaintiffs made it plain: 1.they had not taken any advice from a valuer; the plaintiffs thought the shares were worth more than the previous offer. 2.refused to instruct a valuer until the defendants had certified the accounts; and 3.did not wish to mediate until the defendants had filed their lay evidence. 20On 14 December 2010, the defendants made an offer to compromise the proceedings. The short minutes to that effect were very similar to the ones ultimately agreed to by the parties and included the value of the shares being determined by the court. There was a counter offer on 22 December 2010 with the plaintiffs' solicitors insisting the defendants continue with the preparation of the lay evidence although that would be irrelevant if agreement was reached. 21Because of the progression of time, the defendants did go to the expense of dealing with their lay evidence and served it in February 2011 as I have recounted. Thereafter, by March 2011, substantial agreement was reached on the orders which were made on 14 March 2011 and then rectified in April 2011. 22It can be observed about the period up until the agreement that the offers which the defendants made were less than the amount that was ultimately ordered by the court. However, there were effectively no counter offers by the plaintiffs and a refusal by the plaintiffs to even countenance getting the valuation advice to advance the possible settlement of the matter. 23The plaintiffs' insistence on the need for certified accounts is probably not unrealistic given what ultimately transpired about the accuracy of the company's accounts. However, the insistence by the plaintiffs on the filing of the defendants' lay evidence seems productive of wasted expense when it was perfectly obvious to everyone that the matter would have to be settled by a purchase and the only real question was the value of the shares. 24In essence, I think the plaintiffs adopted a too difficult a stance in the way the matter was conducted up until the agreement was reached and the defendants endeavoured to approach the matter on a sensible basis in order to have it settled. In adopting such a stance the plaintiff did not take reasonable steps to resolve or narrow the issues in dispute as required by s 56(3A) of the Civil Procedure Act 2005. I take that failure into account in exercising the discretion with respect to costs in relation to the period up until 21 April 2011: s 56(5) Civil Procedure Act. 25In the circumstances, I think in this period up until 21 April 2011, each party should pay their own costs. 26The period after the agreement was reached was one in which the parties each retained valuers. There was subsequently a conference between the valuers and a joint report. 27The trial went for six days and this included cross examination of both experts. At [11] of my principal judgment, I refer to the difficulties in Mr Thompson's first report which is plainly in error and at [24]-[25] I set out what occurred in final address where the plaintiffs abandoned Mr Thompson's conclusions as to his valuation of the shares although they used some of his views on appropriate discount rates. There was a complete abandonment of his valuation. Instead, as I recount at [27] onwards, a different case was put based upon the acceptance of Ms Exner's reasoning. 28Mr Thompson was cross examined on his reports for approximately two days and obviously it was necessary given the matters that had to be dealt with if his evidence was still propounded which it was at that stage. If a different course was taken, much of that cross examination could have been avoided. 29No doubt a decision was made after his evidence was complete as to another way to approach the case which ultimately emerged at the commencement of final submissions when the plaintiffs adopted the defendants' expert with some modification. This effectively left a lot of the work involved by both sides in Mr Thompson's evidence as wasted. 30It seems to me that the plaintiffs should pay something for the wasteful way in which the matter was ultimately resolved. Accordingly, I order that the plaintiffs pay one-third of the defendants' costs incurred after 21 April 2011.