Supreme Court New South Wales Medium Neutral Citation: In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 Hearing dates: 13 March 2019 Decision date: 13 March 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that the Defendant's share register be corrected nunc pro tunc to enter the Plaintiff's name as holder of 246,992 ordinary shares on 30 May 2018. The Defendant pay the Plaintiff's costs on the ordinary basis. Catchwords: CORPORATIONS – application for correction of company's share register – where shares in company offered in lieu of payment for work – where resolution passed to issue shares – where steps taken to record the issue of new shares – whether there is an agreement to issue shares – whether an order should be made to correct the company's share register nunc pro tunc under s 175 of the Corporations Act 2001 (Cth). COSTS – application for costs on an indemnity basis – where defendant's conduct in defending proceedings is not unreasonable – whether indemnity costs should be ordered. Legislation Cited: - Civil Procedure Act 2005 (NSW) s 98(1)(c) - Corporations Act 2001 (Cth) ss 175, 175(1) - Uniform Civil Procedure Rules 2005 (NSW) rr 42.2, 42.5 Cases Cited: - Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 - Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 - Grant v John Grant and Sons Pty Ltd (1950) 82 CLR 1 - Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 - Leichhardt Municipal Council v Green [2004] NSWCA 341 - Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 - Re Indoor Climate Technologies Pty Ltd; Daher v Indoor Climate Technologies Pty Ltd [2018] NSWSC 1203 - Re Motasea Pty Ltd [2014] NSWSC 69; (2014) 97 ACSR 589 Category: Principal judgment Parties: Paddington Daintrees Pty Ltd (Plaintiff) Indoor Climate Technologies Pty Ltd (Defendant) Representation: Counsel: B Levet (Plaintiff) S Golledge (Defendant) Solicitors: Alexander Law (Plaintiff) Peter M Wayne & Associates (Defendant) File Number(s): 2018/259643 Judgment – ex tempore (revised 15 march 2019) Matters in issue 1. By Originating Process filed on 23 August 2018, the Plaintiff, Paddington Daintrees Pty Ltd ("Paddington Daintrees") seeks an order under s 175(1) of the Corporations Act 2001 (Cth) that the Defendant, Indoor Climate Technologies Pty Ltd ("ICT"), correct its share register by the entry of the name of Paddington Daintrees as holder of 246,992 ordinary shares. It is now common ground between the parties that such an order should be made, on the basis that the correction is to take effect nunc pro tunc from 30 May 2018. I will refer to the evidence as to the relevance of that date below. A further order claiming damages was not pressed. There remains a dispute between the parties as to the basis on which an order for costs should be made. Order for rectification of share register 1. The first question is whether an order should be made under s 175 of the Corporations Act. Although there is agreement between the parties as to that matter, I proceed on the basis that the making of such an order involves an active discretion by the Court, and that the Court must be satisfied that that order may properly be made on the merits, before it makes such an order. The principles on which such an order may be made are well established, and I have drawn on my summary of them in Re Motasea Pty Ltd [2014] NSWSC 69; (2014) 97 ACSR 589. 2. Section 175 of the Corporations Act relevantly provides that a person aggrieved may apply to the Court to have a register kept by a company corrected and, if the Court orders that the company correct the register, it may also order compensation, which is now not sought in the case. The section operates in parallel to and arguably assumes the existence of the Court's equitable jurisdiction to rectify a register: Grant v John Grant and Sons Pty Ltd (1950) 82 CLR 1; Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 at 558–559. The applicant for rectification must show that it has a personal equity that the Court will protect, and prima facie such an equity is shown if a person's name is wrongly omitted from the register, although the Court retains a residual discretion as to whether to order rectification in such a case: Grant v John Grant and Sons Pty Ltd above. The principles of rectification at general law are also relevant, so that the Court will have regard to whether the parties have a common intention as to a matter that is not reflected in the register: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603. 3. Here, Paddington Daintrees relies on the affidavits of its director, Mr Albert Daher, dated 22 August 2018 and 8 October 2018. Mr Daher refers to communications with a Mr Habchi who was interested in ICT, in respect of a prototype air conditioner, in which it is suggested that Mr Daher was invited to become involved in the project on the basis that he would be given equity in the project rather than paid for his work. Mr Daher refers to subsequent correspondence concerning the matter, extending to a request that he be director of ICT. He refers to attending a meeting of an "advisory board" of ICT on 30 May 2018, at which agreement was reached to issue 2 per cent of shares in ICT to Paddington Daintrees, with the possibility that additional shares would be issued if Mr Daher subsequently introduced investors to ICT. He refers to the passage of a resolution to issue 246,992 shares to him, although it appears what was contemplated was an issue of shares to Paddington Daintrees. It appears that a resolution was passed by the board of ICT, on 30 May 2018, resolving that 246,992 additional shares be issued and the name recorded in the register of members and a share certificate issued to "Paddington Daintree Pty Ltd", although that is likely to be a reference to Paddington Daintrees. 4. Mr Daher in turn refers to having completed an application form for new shares, which is in evidence, and recorded the applicant as Paddington Daintrees as trustee for the Daher Discretionary Trust. Mr Daher also refers to having been provided with a form of notification to the Australian Securities and Investments Commission recording the issue of the new shares, and he appears to have signed that form, purportedly in his capacity as a director of ICT. He refers to having attended the office of ICT's accountant, where he says he was shown a share register recording the shares in ICT issued to Paddington Daintrees. ICT did not lead evidence to contest that account, at least for the purposes of the hearing today. 5. These matters are sufficient to establish, in my view, both an agreement to issue the relevant shares to Paddington Daintrees, and a decision by ICT, by its board, to issue those shares, in consideration of the work to be undertaken by Mr Daher, and to record the name of Paddington Daintrees and the number of shares to be issued in ICT's share register. That is, on the authorities to which I have referred, sufficient to support the order for rectification that is sought. The parties have agreed that that order for rectification should be made nunc pro tunc with effect from 30 May 2018, the date on which the resolution is reported as having been passed to issue the relevant shares. It seems to me that the Court can give effect to the parties' agreement in that respect, where that is consistent with the position reflected in the evidence to which I have referred. Costs 1. There remains a question as to the costs of the proceedings. Mr Golledge, who appears for ICT, concedes that ICT should be ordered to pay Paddington Daintrees' costs of the proceedings on an ordinary basis, although that concession may need to be qualified to deal with any costs of the argument as to costs which has taken up much of the time in this hearing. Paddington Daintrees presses for an order for costs on an indemnity basis, although the basis on which it contended such an order could be made was ultimately far from clear. 2. The principles on which an order for indemnity costs may be made are also well established. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, unless the Court otherwise orders or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the Uniform Civil Procedure Rules deals with an order for costs on an indemnity basis. Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute. 3. Mr Levet, who appears for Paddington Daintrees, supported an order for indemnity costs, on the basis that ICT had concluded that it would be unsuccessful in the proceedings, and consented to the order which was sought by Paddington Daintrees. I pause to note that it had done so in circumstances that, as will emerge below, it had been seeking to resolve the proceedings by agreement with Paddington Daintrees for a considerable period. There seems to be nothing unreasonable in that approach, which is no less reasonable than that of a party which defended proceedings and was ultimately unsuccessful, as many defendants are in many cases, and are ordered to pay costs on an ordinary basis in the usual way. 4. Mr Levet then alerted to the fact that Paddington Daintrees had brought proceedings seeking a winding up of ICT, which were dismissed by Ward CJ in Eq in her judgment in Re Indoor Climate Technologies Pty Ltd; Daher v Indoor Climate Technologies Pty Ltd [2018] NSWSC 1203. Those proceedings were dismissed on the straightforward basis that Paddington Daintrees was not then a shareholder in ICT, which is the premise on which it now seeks rectification of the register. Because it was not then a shareholder in ICT, it had no standing to bring a winding up order, and the proceedings it had commenced were doomed, on appellate authority, to fail. There it seems to me nothing controversial or surprising about that result, and I do not understand how it provides any basis for criticism of ICT's conduct of the proceedings. It was, instead, the likely or inevitable result of the commencement of winding up proceedings by Paddington Daintrees, when it had no standing to pursue them, given the position of which it complains in these proceedings. 5. Mr Golledge, who appears for ICT, in turn refers to a bundle of correspondence, commencing as early as 25 July 2018, relating to the potential resolution of these proceedings. In a first letter dated 25 July 2018, the solicitor for ICT had made an offer that the allotment of shares for 2 per cent in ICT to Paddington Daintrees be "affirmed", on the basis that Mr Daher resigned as a director of ICT, and the proceedings be discontinued. I accept that Paddington Daintrees was not required to accept that offer, where it introduced an additional requirement for the resignation of Mr Daher as a director, in circumstances that, on the result of this case, ICT was entitled to rectification of the register in any event. The proceedings before Ward CJ in Eq to which I have referred then followed and Paddington Daintrees then brought an application for leave to appeal from her Honour's decision before, sensibly, not pursuing that application. 6. Paddington Daintrees then commenced these proceedings and, by 1 November 2018, the solicitor for ICT made an offer that ICT would affirm the allotment of shares in ICT to Paddington Daintrees, on the basis that the proceedings would be dismissed. That offer provoked correspondence from Paddington Daintrees' solicitors which could be described as, at best, confusing, which appears to contemplate that Paddington Daintrees would withdraw the proceedings after rectification of the register, at the same time as maintaining other complaints in respect of the conduct of ICT's affairs. By 5 November 2018, Paddington Daintrees offered to accept the offer that ICT had previously made on 1 November 2018, with the result that these proceedings would have concluded, although the appeal in the winding up proceedings would then continue. By 13 November 2018, a further complexity had arisen, so far as ICT's solicitors then suggested that the allotment of shares would depend upon satisfaction of constitutional provisions regarding existing shareholders' rights to be offered the allotment at first instance and that matter may reasonably have been of concern to Paddington Daintrees, particularly where it contended that it was entitled to the issue of the shares, pursuant to a resolution that had been passed by ICT's board long before. Mr Levet fairly points to the fact that Paddington Daintrees could reasonably have been concerned about any arrangement that contemplated a further agreement to issue the shares, in circumstances that it claimed it already had the benefit of an existing agreement as to the shares. By 15 November 2018, it appears that additional issues had arisen, including the question of whether any dismissal of the proceedings should be made on the basis that the shares were issued nunc pro tunc. 7. Ultimately, this correspondence, despite its confusing character, demonstrates that continued efforts were made by ICT to seek to resolve the proceedings, although I accept that there were areas in which Paddington Daintrees was entitled to have legitimate concerns as to the efficacy of the proposed resolution. It does not seem to me that anything in that correspondence indicates any unreasonable approach by ICT to the proceedings, beyond the proposition that is ultimately accepted that Paddington Daintrees will succeed, and has consented to the order sought against it, at least in part. 8. It does not seem to me that any of these matters suggest that there has been any unreasonable conduct of ICT in its defence of the proceedings. All that emerges from the matters to which I have referred is that ICT now accepts that Paddington Daintrees would succeed in obtaining an order for rectification, and has rightly accepted that matter at the commencement of the proceedings, rather than requiring the matter to go to a full hearing for that to be established. That does not suggest any degree of unreasonable conduct on the part of ICT in the conduct of the proceedings. In these circumstances, no basis for an order for indemnity costs against ICT is established. I will make an order that ICT pay Paddington Daintrees' costs on the ordinary basis, subject to hearing the parties as to whether any adjustment should be made for the fact that a significant amount of time has been spent this morning on Paddington Daintrees' unsuccessful application for indemnity costs. ********** 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: 03 April 2019