ACD Tridon v Tridon Australia

5738/01 ACD TRIDON INC V TRIDON AUSTRALIA PTY LTD & ORS JUDGMENT HIS HONOUR: Introduction 1 This proceeding began by summons filed on 29 November 2001. Initially the plaintiff, ACDT, sought only orders for access to the books and records of the first defendant, TAPL ("the Document Access Claims"). On 19 January 2002 the second and third defendants, Mr and Mrs Lennox, caused ACDT's shares in TAPL to be transferred to Mr Lennox, purportedly relying on a clause in the Shareholders Agreement governing the shareholdings in TAPL. Thereafter the originating process was amended several times, to add claims challenging the validity of the share transfer and other matters. The additional claims have been described as the Share Divestiture Claims, the Directors' Misconduct Claims, the Further Oppression Claims, and the Distribution Agreement Termination Claims. The facts and the history of the proceeding are more fully described in my judgment delivered on 4 October 2002, ACD Tridon v Tridon Australia [2002] NSWSC 896 ("the Stay Judgment"). 2 During the course of 2002, many interlocutory applications were made by all or some of the defendants. There were, inter alia, applications to stay the proceeding pursuant to arbitration clauses; applications to strike out the proceeding; consolidation applications to have the stay applications and the strike-out applications heard together; an application to enforce compliance with the Court's orders of 13 June 2002 regarding production of documents; an application for leave to use documents produced in this proceeding in a Federal Court proceeding; and an application for an order that an arbitrator determine whether ACDT was authorised by the Shareholders' Agreement to remove Mr Arkin as a director of TAPL. 3 Because of the complexity of the proceeding, its connection with proceedings in the High Court of New Zealand and the Federal Court of Australia as well as an arbitration proceeding, and the sheer volume of interlocutory applications, I decided with the consent of the parties that it was necessary for a judge of the Equity Division to provide case management and consequently a measure of continuity in the resolution of interlocutory issues. I took responsibility for that function, after interlocutory matters came before me in the Corporations List. 4 In due course the applications were disposed of by judgments of the Court (as, for example, in the Stay Judgment), or by agreement, or by withdrawal. It is now necessary for me to determine what is the most appropriate costs order in respect of each of the applications that I have mentioned, because the costs of those applications have not already been dealt with. 5 Four other issues have arisen for consideration, included in the written submissions of the parties dated 23 January 2003 (defendants) and 31 January 2003 (ACDT). First, now that I have decided, in the Stay Judgment, to make a reference under Part 72 of the Supreme Court Rules, it is necessary to decide who will fund the reference proceeding, and in what proportions. Secondly, there is an application by the defendants for an order that ACDT provide security for costs. Thirdly, ACDT has sought leave to serve a subpoena on Tridon Investments Limited. Since this was a matter of some pressing urgency, I heard the application and dealt with it in reasons for judgment delivered on 3 February 2003, but I have not yet dealt with the costs of the application. Fourthly, there is an application by TAPL to set aside subpoenas issued to its controlled entities. 6 This judgment will deal with the question of costs of the various interlocutory applications, and also with these four remaining issues. General principles with respect to costs 7 Under s 76 of the Supreme Court Act 1970 (NSW), costs are in the discretion of the Court, which has full power to determine by whom and to what extent costs are to be paid. However, Part 52A rule 11 of the Supreme Court Rules states that if the Court makes any order for costs, the Court is to order that the costs follow the event, except where it appears to the Court that some other orders should be made as to the whole or any part of the costs. On its face, this rule appears to relate to an order for costs upon the final determination of the proceeding, rather than following an interlocutory determination. However, Part 52A rule 16 states that the costs of any application shall, unless the Court otherwise orders, be paid and otherwise dealt with in accordance with the provisions of Part 52A. This appears to mean that, absent other considerations, costs should follow the interlocutory "event". 8 It is common for the costs of interlocutory hearings to be made either "costs in the cause" or "the plaintiff's/defendant's costs in the cause": Ritchie's Supreme Court Procedure NSW (looseleaf), paragraph [52A.16.1]. Where the order is that the costs of the interlocutory application be costs in the cause, the effect is that "the costs of the interlocutory application are to be awarded according to the final award of costs in the action": JT Stratford & Son Limited v Lindley (No 2) [1969] 3 All ER 1122, 1123 per Lord Denning MR. His Lordship also explained that "plaintiff's costs in the cause" means that "if the plaintiff wins, he gets the costs of the interlocutory proceedings; but, if he loses, he does not have to pay the other side's costs of them" (at 1123). It is the latter proposition that marks the divergence - as Ritchie explains, where costs are made "plaintiff's/defendant's costs in the cause", the effect is that "the party who failed in the interlocutory proceedings cannot recover their costs of the application even if they ultimately succeed at the final hearing of the proceedings" (at [52A.16.1]). 9 In Ingersoll-Rand (Aust) Ltd v Industrial Rollformers Pty Ltd [2000] NSWSC 178 (15 February 2000), Hamilton J expressed the opinion that the usual order for costs upon a successful plaintiff's interlocutory application is that the plaintiff's costs of the application be the plaintiff's costs in the cause. He noted that a submission, to the effect that the usual order in favour of a successful plaintiff in a contested application for interlocutory relief was that the costs be costs in the cause, was withdrawn. 10 I respectfully accept his Honour's view as to the normal practice of this Division of the Court. It seems to me, however, that the order that costs be the plaintiff's or defendant's costs in the cause has become the usual order only because discretionary considerations favouring that outcome are usually present. It is frequently appropriate, where an interlocutory application is contested and then determined in favour of one party or the other, that the successful party be immunised from the risk of having to bear the other side's costs of the application in the event that the other side has final victory and obtains a final order for costs; although, at the same time, it is inappropriate to reward the interlocutory victor with an immediate order for costs, because some of the matters relevant to the exercise of the Court's discretion as to costs are not known at the interlocutory stage. 11 In other cases, the appropriate order is that the costs of the application be costs in the cause. For example, in Drabsch v Switzerland General Insurance Co Ltd (Supreme Court of New South Wales, Santow J, 16 October 1996, unreported) the hearing of a contested application for leave to amend a pleading lasted for nine days, with the plaintiff eventually succeeding. The Court thought it appropriate to adopt "an approach which looks to the ultimate result in the substantive proceedings" as "the critical determinant, not the route reached to get that result" (at 13-14). Consequently the order was that the costs of the application for leave to amend be costs of the proceeding. It seems to me that will often be the appropriate order where the interlocutory application is for leave to amend a pleading. Success merely authorises the successful party to make new or different contentions, leaving entirely at large the question whether those contentions will be made out at the hearing. If the amending party succeeds at the hearing, then it will normally be appropriate that the costs of the application for leave to amend, as well as the costs of the proceeding generally, be payable by the unsuccessful party. The converse is true if the amending party fails at the final hearing. 12 In yet other cases, the interlocutory issue is self-contained and the Court is able to conclude that matters emerging subsequently will not affect the question of costs of the interlocutory issue. Where that is so, the Court may decide to revert to the "usual order" that costs are to follow the event. The question whether to order the unsuccessful party to the interlocutory application to pay the victor's costs is frequently raised in conjunction with another issue, namely whether it is appropriate that the costs of the interlocutory application be assessed and paid forthwith. Considerations relevant to such a determination are summarised in Ritchie, paragraph [52A.9.2], a paragraph I recently had occasion to consider in ASIC v Rich [2003] NSWSC 297 (11 April 2003), at [86]-[87]. As I noted on that occasion, the practice in the Commercial and Technology and Construction Lists of this Court is that unless otherwise ordered, a party in whose favour an order for costs is made may proceed to assessment of such costs forthwith: Practice Note No 100, paragraph 23. 13 Where the applicant in an interlocutory application seeks the leave of the Court to take some step, in circumstances where the application is for an indulgence, it is frequently appropriate that no order for costs be made in the applicant's favour, even if the applicant succeeds in obtaining the Court's leave notwithstanding opposition by the respondent. It is sometimes appropriate to order that the respondent's costs in resisting the application be paid by the successful applicant. 14 I should say that the defendants referred me to many other cases, decided by courts in this country and elsewhere, on issues as to costs. I have considered those cases but they are of limited assistance, given the discretionary and fact-specific nature of orders as to costs. Cost of the consolidation applications 15 TAPL and Mrs Lennox filed "consolidation" applications on 10 May 2002, by which they sought orders for the hearing together with all of the defendants' strike-out and stay applications. By that time, the following interlocutory applications (so far as relevant) had been filed by defendants: · an application by Mr Lennox that the proceeding be stayed pending arbitration (28 March 2002); · an application by TAPL that the proceeding be stayed pending arbitration (1 May 2002); · an application by TNZL, the fourth defendant, for the originating process to be struck out insofar as it joined TNZL as a party, or summarily dismissed, or that the proceeding be stayed pending arbitration (1 May 2002); · an application by Mrs Lennox that the proceeding be stayed, or dismissed generally (9 May 2002); · an application by TAPL that ACDT's pleading be struck out, or that the proceeding be stayed or dismissed generally (10 May 2002); · an application by Mr Lennox that ACDT's pleading be struck out, or that the proceeding be stayed or dismissed generally (16 May 2002). 16 The stay application by Mr Lennox was procedurally the most advanced, as directions had been made for the filing and serving of evidence and the application had been placed in the Short Notice List to be heard on a date not before 20 May. 17 The proceeding came before me on 21 May 2002. I directed Mr Lennox to notify the Registrar that his application in the Short Notice List be not listed for hearing without reference to me, and I made various other directions. The proceeding returned to me on 29 May 2002, when I made a direction requiring the defendants, within a specified time, to state whether they intended to proceed with the strike-out applications, and if so, to provide the plaintiff with a written outline of the grounds upon which those applications were based. 18 The strike-out applications by TAPL and Mr Lennox, made on 10 and 16 May 2002, were withdrawn on 6 June 2002, and I was able to hear the stay applications together. The stay applications by TAPL (1 May 2002), Mr Lennox (28 March 2002), Mrs Lennox (9 May 2002) and TNZL (1 May 2002) were heard on 4 July and 2 August 2002, and I delivered a lengthy reserved judgment (the Stay Judgment) on 4 October 2002. 19 The defendants now submit that although the desirability of hearing the stay applications together was always evident, the consolidation applications were to a degree resisted by ACDT. They say that the outcome was, effectively, success for them regarding consolidation, and therefore they should receive their costs of the consolidation applications on the principle that costs should follow the event. 20 I disagree with the defendants' submission. Shortly after the consolidation applications were suggested, the solicitors for ACDT, Allens Arthur Robinson ("Allens") wrote to the solicitors for the first and second defendants (Cutler Hughes & Harris - "Cutler Hughes") saying that they did not consent to consolidation, because Mr Lennox's application would be ready for hearing on 20 May, but the other applications could not be dealt with at that time. The letter also said that ACDT did not accept that there would be any utility in hearing the applications together, but that position was changed in a letter from Allens to Cutler Hughes dated 14 May 2002, which said: "If there are any interlocutory applications which are ready for hearing and can conveniently be heard together without delaying them, we will of course agree to that course. However, as things stand at present we do not believe that there are any interlocutory applications which satisfy these requirements." 21 The true position, therefore, is that ACDT did not oppose consolidation absolutely. Their attitude was that if the applications of the other defendants could be heard at the same time as Mr Lennox's application they would agree to that course, but at the time of the consolidation applications none of the strike-out or stay applications of the other defendants was nearly so advanced as Mr Lennox's application, which had been placed in the Short Notice List. It was only when the strike out applications were withdrawn, after directions hearings, that it became clear that the stay applications could and should be heard together and were sufficiently ready that they could proceed to hearing together on 4 July. 22 Given that history, and the facts that the consolidation applications were made, in part, to support the strike-out applications which were not pursued, and that the question of consolidation was addressed reasonably expeditiously after the applications for consolidation were first made, it seems to me inappropriate to make a costs order adverse to ACDT. In my opinion the appropriate order is that the costs of the consolidation applications be costs in the proceeding. Even though the defendants sought costs and ACDT has successfully contended for a "costs in the cause" order, it seems to me that the "costs in the cause" order should extend to the cost application itself. 23 The defendants submit not only that they should have an order for costs in respect of the consolidation applications, but that costs should be assessed on an indemnity basis because of "gross unreasonableness" on ACDT's part. It follows from what I have said that I do not regard ACDT as having acted in a grossly unreasonable fashion in response to the consolidation applications. Cost of the strike out applications 24 These are the applications by TAPL on 10 May 2002, Mr Lennox on 16 May 2002, and TNZL on 1 May 2002. 25 The applications by TAPL and Mr Lennox were made without any prior canvassing of the pleadings in correspondence. The basis for them was never clearly articulated, but they seem to have involved the proposition that, because of the Canadian amalgamation, the plaintiff ACDT is not the same entity as the ACDT that executed the Shareholders Agreement and the Distribution Agreement. 26 On 3 June 2002 the solicitors then acting for Mr Lennox wrote to Allens seeking particulars of the amended originating process, so that Mr Lennox could decide whether to pursue his strike out application. The letter sought information about the identity of the plaintiff ACDT, whether it was alleged to be the same entity as the entity called ACDT in the Shareholders Agreement and the Distribution Agreement, and the basis upon which ACDT claimed to have standing in the proceeding. 27 Allens replied on 4 June, saying that ACDT was one corporation before and after the Canadian amalgamation, although it acquired a new corporation number under Ontario law after the amalgamation. The letter said: "Although we have, as a matter of courtesy, responded to your letter prior to your deadline, we take exception to your peremptory demand for further information. Our position on this issue has been clear since January. You did not seek particulars before you filed your client's application to have the proceedings strike out. Presumably, you had by then decided, on the face of the Originating Process, that it was incurably bad. In the circumstances, it is not acceptable that you should now demand answers to further questions before deciding whether to pursue the application." 28 At the hearing on 6 June 2002 counsel for TAPL and Mr Lennox announced that they would not continue with their strike-out applications, on the ground that Allens' letter of 4 June had "just muddied the water sufficiently so as to avoid the strike out motions … proceeding in regard to their major points", even though "the Originating Process [was] still deficient and/or vague and embarrassing in a number of respects". 29 I cannot see how anything said in the letter of 4 June could have provided a basis for withdrawal of the applications that was not already present. Nor was there any amendment to the originating process after the filing of these two strike-out applications that might have altered the circumstances and warranted the withdrawal of the applications. Consequently my view is that ACDT's costs of and incidental to the strike-out applications by TAPL (10 May 2002) and Mr Lennox (16 May 2002) should be the plaintiff's costs in the proceeding. ACDT's submission on costs has been successful and so the "plaintiff's costs in the cause" order should extend to the submissions on costs. 30 As regards TNZL's application made on 1 May 2002, which was in part a strike-out application, the basis of the application appears to have been that the Court had no jurisdiction over TNZL. It is not easy to see how that contention could be sustained, bearing in mind that ACDT made the Distribution Agreement Termination Claims in respect of an agreement to which TNZL was a party. However, the TNZL strike-out application was never determined (it was finally withdrawn at the hearing on 2 August 2002) and it was not, on its face, obviously demurrable. Additionally, for a time there were prayers for relief against TNZL, apparently based on oppression, which ACDT later conceded to be misconceived, and they were deleted pursuant to leave granted on 29 May 2002. Whether the strike out application was intended to challenge those prayers for relief is not clear. 31 In all the circumstances, it seems to me the appropriate order with respect to TNZL's application of 1 May 2002, to the extent that it is a strike-out application, is that the costs of the application should be costs in the proceeding. That should apply, as well, to the submissions on costs. Costs of the stay applications 32 By their various stay applications, the defendants contended, in summary, that the whole of the proceeding should be stayed pending a determination by arbitration of those claims that were arbitrable. The primary position of ACDT was that no stay of the proceeding should be granted, for several reasons including the claim that the defendants had waived their rights to insist upon arbitration. ACDT also adopted a secondary position, and a tertiary or "fallback" position. The secondary position was that, if some of the claims were arbitrable and not waived, then the arbitration of those claims should be deferred until the resolution of the non-arbitrable claims by the Court. The tertiary position was that, if the Court did not accept the primary and secondary contentions, then there should be a reference under Part 72 of the non-arbitrable parts to the person who was the arbitrator of the arbitrable parts. 33 Early in the hearing of the stay applications I drew attention to ACDT's tertiary position and asked whether the parties would be prepared to agree to a reference under Part 72, so as to avoid the cost and delay of a contested interlocutory hearing followed by a reserved judgment after time for deliberation (a time likely to be substantial, given the length of the written submissions that had been received and the fact that the defendants proffered three thick lever-arch folders of photocopied authorities). Counsel for the defendants promptly informed me in substance, that his clients would agree to that course, but after taking instructions, counsel for ACDT told me that his clients elected to pursue its primary and secondary positions. 34 In fairness to ACDT, I should point out that counsel for ACDT drew attention to some difficulties that would arise out of the Part 72 solution unless the defendants were prepared to withdraw their stay applications, a step not offered by the defendants until late on the second day of the hearing. 35 In the Stay Judgment I analysed and construed the arbitration clauses in the Shareholders Agreement and the Distribution Agreement, concluding that some of the claims in the proceeding fell within the arbitration provisions, while others did not (Stay Judgment, at [167]-[177]). Essentially claims were within the arbitration clauses to the extent that they were based in contract, but they were outside the arbitration clauses to the extent that they were based solely on the Corporations Act or equitable matters. I regarded it as undesirable to have a sequencing of the curial and arbitrable parts of the dispute, either by the deferral of the arbitration until after the hearing of the proceeding, or by deferral of the hearing of the proceeding until after the arbitration. 36 As to the claim based on waiver, I held that the facts did not support waiver in any of the senses of that word to which legal consequences are attached, but various aspects of the defendants' conduct might be relevant to discretionary questions, including the question of costs (Stay Judgment, at [89]). 37 It was possible for me to opt for the Part 72 solution because both sides consented to it. It was unnecessary for me to decide what I would do if Part 72 had not been available, but the reasoning that I set out in the Stay Judgment points to the likelihood that, absent the Part 72 solution, the stay applications by Mr Lennox and TAPL would have succeeded as to the contract-based claims and would have failed as to the Corporations Act claims, with no orders as to the sequencing of the arbitration and the proceeding. 38 As ACDT pointed out in its submissions on costs, Mrs Lennox's stay application would then probably have failed in its entirety, because she was not a party to either of the agreements. On the other hand, TNZL's stay application would probably have been wholly successful, since the claims against it are now solely contract-based. I should note that I see no ground for the defendants' submission that if TNZL's stay application had succeeded, this would have inevitably led to a stay of all matters, arbitrable and otherwise, pleaded against the other defendants. That seems to be inconsistent with my view, in the Stay Judgment, that I would not do anything to produce a sequencing of the curial and arbitrable parts of the dispute (Stay Judgment, at [204]). 39 The defendants submit that they should have their costs of the stay applications because, at an early stage during the hearing, they consented to the Part 72 solution, while ACDT was not prepared to do so and required, instead, that the Court make decisions on its primary and secondary positions, on each of which ACDT was unsuccessful. 40 I do not accept the defendants' submission. It is not correct to say that ACDT was wholly unsuccessful in respect of its primary and secondary positions. I indicated in the Stay Judgment that matters relied upon by ACDT as going to waiver by the defendants might be relevant on the question of costs; and further, I held that the purely statutory, Corporations Act parts of the claims did not fall within the arbitration clauses. Indeed, if the Part 72 solution had not been available because one or both sides were not prepared to consent to it, the outcome of the stay applications would have been something of a stalemate, highly unsatisfactory in terms of case-management of the dispute to an efficient and speedy resolution. Far from losing completely, it is at least arguable that ACDT would have had the better of such an outcome, because a substantial part of the relief sought in the contract-based claims would also appear to be available under the Corporations Act. 41 These considerations point strongly, in my view, to the conclusion that the costs order in respect of the stay applications should be that the costs be costs of the proceeding. There is an analogy between the stay applications and the amendment application in the Drabsch case. Both were lengthy, hotly contested applications. Both lead to an outcome that resolved none of the substantive issues between the parties but set up a procedure for decision in future. In both cases, later events might be relevant to the exercise of the Court's discretion with respect to costs. 42 ACDT drew attention to the defendants' delay in making the stay applications (the proceeding having been commenced on 29 November 2001), and the conduct relied upon by it as amounting to waiver, considered in the Stay Judgment. Those matters are relevant to my present decision as to costs, but in the circumstances they reinforce the conclusion that the costs should be costs in the proceeding, especially since ACDT's submission on costs was that while the overall balance may perhaps be in its favour, it would be content for the costs of the stay applications to be costs in the proceeding. Although ACDT has been successful in resisting the defendants' application for a costs order, and in contending that the correct order should be a "costs in the cause" order, my view is that the costs of the application for costs should also be costs in the proceeding. I shall make orders accordingly. 43 An attempt was made in the evidence to allocate a portion of the defendants' costs to the waiver issue. Mr Higginbotham of Cutler Hughes gave evidence estimating that the costs incurred by TAPL and TNZL with respect to the waiver issue were 25 to 35% of their total costs. However, Mr Higginbotham was cross-examined effectively and as a result, I have no real confidence in his estimate. In any event, I am not persuaded of the desirability of segregating the waiver issue in my orders for costs. I do not regard Mr Cutter's evidence of the costs of the waiver issue, in his affidavit made on 3 February 2003, as providing an adequate basis for apportionment. 44 I see no proper basis for treating any of the stay applications differently from the others, on the question of costs. In particular, I see no basis for singling out TNZL and ordering ACDT to pay its costs, whether on an indemnity basis or otherwise. TNZL was joined as a defendant to the present proceeding by consent, and there was at least an arguable basis for contending that it had waived its right to enforce the arbitration clause in the Distribution Agreement. Although separate submissions were made in the stay applications for the benefit of TNZL, most of the submissions in the stay applications were directed to the applications generally. TNZL was represented on the stay applications by the same solicitors and counsel as TAPL and Mr Lennox and (for the most part) Mrs Lennox, so that most of the costs of the defendants on the stay applications would have been costs of the defendants generally. Costs of the application to enforce compliance with the Court's orders of 13 June 2002 45 After a contested application for production of documents by ACDT, I made orders on 13 June 2002 for the production of documents by ACDT, and it produced some documents on 27 June 2002. Thereafter, there was correspondence between Cutler Hughes and Allens in which Cutler Hughes asserted that there must be further documents caught by the orders of 13 June, and they also sought production of wider categories of documents, going beyond the categories identified in the orders. 46 The first defendant filed an interlocutory process on 26 July 2002, returnable on 2 August 2002, the second day of the hearing of the stay applications. It also issued a further notice to produce. By letter dated 1 August 2002, Allens provided Cutler Hughes with copies of further documents. Some of the documents were produced in answer to the wider requests and some of them had been located by ACDT and fell within the orders of 13 June. Counsel for the defendants called upon the notice to produce and raised the question of the interlocutory process, at the hearing on 2 August 2002, but no orders were sought or made. 47 In its submissions on costs, ACDT has admitted that it was at fault in failing to produce all of the documents which were ordered to be produced on 13 June within the time specified in the orders. Through its counsel it has apologised to the Court. However, it submits that its failure was not deliberate and that it was not obliged to produce certain other documents which it in fact produced. It contends that the matter could have been resolved by correspondence, and the interlocutory application of 26 July was not necessary. It points out that no additional court attendances were required. It contends that the appropriate order should be that the costs of that interlocutory process be costs in the proceeding. 48 I disagree with ACDT's submission. In my opinion the most important point in this matter is that additional documents falling within the categories identified in the Court's orders of 13 June 2002 were not produced until after the filing of the interlocutory process on 26 July 2002. Although I have no reason to reject ACDT's submission that its failure to produce those documents at an earlier stage was not deliberate, it seems to me that the circumstances give rise to the inference that the filing of the interlocutory process stimulated some activity leading to the discovery of the additional documents. In that sense, the initiation of the interlocutory process was vindicated. 49 The correct order, in my view, is that the costs of and incidental to the interlocutory process filed on 26 July 2002, and the costs of the application for costs, be the first defendant's costs in the proceeding. Costs of the application to use documents produced to this Court in the Federal Court proceeding 50 Mr Arkin, as the director of TAPL representing ACDT, commenced a proceeding in the Federal Court of Australia on 22 April 2002, seeking relief with respect to access to books and records of TAPL. On 26 August 2002 TAPL filed an application in this Court for leave to use the documents that had been produced by ACDT in the Federal Court proceeding. On 30 August 2002 Allens wrote to Cutler Hughes consenting to the use of certain documents in the Federal Court proceeding. 51 The defendants submit that it was "abundantly obvious" that the Supreme Court documents were relevant to the Federal Court proceeding, because the two proceedings involved common issues, including the validity of the Canadian amalgamation and the issue whether ACDT is still a shareholder in TAPL. 52 The contention that the two proceedings involve these common issues is inconsistent with the judgment of Hely J in the Federal Court proceeding, dismissing a stay application brought by TAPL: Arkin v Tridon Australia Pty Ltd [2002] FCA 1629 (24 December 2002). His Honour noted (judgment, at [47]ff) that Mr Arkin asserted the statutory right of a director of the company to have access to the financial records at all reasonable times, and to apply to the Court for an order authorising a person to inspect the financial records on the director's behalf: Corporations Act, s 290(1) and (2). For the purposes of s 290, "director" includes a person who has not been validly appointed as a director but who acts in the position of a director: Corporations Act, s 9. There was evidence that Mr Arkin had acted in the position of a director of TAPL, and consequently that Mr Arkin had standing to seek relief under s 290 regardless of whether he had validly been appointed to the TAPL board and whether ACDT remained a shareholder. Therefore, in his Honour's opinion, resolution of the Federal Court proceeding would not involve consideration of the question whether the company identified as ACDT in the Shareholders Agreement and the Distribution Agreement was the same entity as the plaintiff, notwithstanding the Canadian amalgamation, nor the questions whether Mr Lennox had acquired ACDT's shareholding and whether Mr Arkin had been validly appointed as a director. 53 By making the application filed on 26 August 2002, TAPL was seeking to advance its interests in a proceeding to which ACDT is not a party. It was seeking leave to do so, and was therefore seeking an indulgence. It is not normal for an applicant in such circumstances to have the benefit of an order for costs. Further, in my opinion the application was launched in a peremptory way. In a letter dated 20 August 2002, Cutler Hughes informed Allens that they intended to exhibit to a Federal Court affidavit all notices to produce, correspondence and documents produced by ACDT in the Supreme Court proceeding. No further information was given. The letter said that unless Cutler Hughes heard to the contrary by 5pm on the following day, they would assume that there was no objection, but if objection was raised, they would apply to the Court. Allens replied on the same day pointing out, inter alia, that Cutler Hughes had provided no reason why the Supreme Court material was relevant to the Federal Court proceeding. Without seeking to provide any explanation, Cutler Hughes sent Allens an interlocutory process and supporting affidavits, with their letter of 23 August 2002. The proposed interlocutory process was withdrawn and replaced, under cover of a letter dated 25 August 2002, with an interlocutory process seeking leave to tender in the Federal Court only the material produced by ACDT pursuant to this Court's orders of 13 June 2002, and the revised interlocutory process was filed on Monday 26 August 2002. 54 Allens' request for a statement of the reasons why the Supreme Court material was relevant to the Federal Court proceedings was a reasonable request, especially having regard to the matters to which Hely J subsequently referred in his judgment. I do not understand Jacobson J to have taken any inconsistent view in the Federal Court when the matter appeared before him for directions. The request should have been answered before the interlocutory process was filed. 55 Four days later, and without having received a reply to its letter of 26 August 2002, ACDT consented to the use of the documents in the Federal Court proceeding. Its conduct in doing so was reasonable in the circumstances. It seems to me likely that it would have responded in this way earlier if its reasonable request for information had been met. 56 Although it eventually obtained by consent the outcome that it desired, TAPL should not be entitled to recover the costs of its hasty application for an indulgence, even if it succeeds at the final hearing. Therefore the correct order is that ACDT's costs of and incidental to the interlocutory process filed on 26 August 2002, and the costs of the application for costs, be ACDT's costs against TAPL in the proceeding. Costs of the application for an arbitrator to determine ACDT's ability to remove Mr Arkin as a director of TAPL 57 On 13 September 2002 Mr Lennox filed an interlocutory process seeking orders that Mr Clarke QC (then the arbitrator under the Distribution Agreement) or some other person "be appointed as arbitrator to determine whether [ACDT], pursuant to clause 3.7 of the Shareholder's Agreement is able to remove [Mr Arkin] as a director of [TAPL]". No substantial steps were taken to bring the application to hearing and it was dismissed by consent on 18 October 2002. 58 ACDT submits that the application was misconceived. According to its argument, the Court's jurisdiction under the International Arbitration Act 1974 (Cth), s 7, and the Commercial Arbitration Act 1984 (NSW), s 53, is a jurisdiction to stay proceedings in the Court. According to this submission, the Court has no general power to order that a matter be arbitrated, and if a party to an arbitration agreement wishes to have a matter arbitrated, it should simply commence arbitration proceedings in the way specified in the agreement without seeking any order of the Court. 59 I accept that it is open to a party to an arbitration agreement who wishes to have a matter arbitrated, simply to invoke the arbitration procedure set out in the agreement. I also accept that the Court's statutory jurisdiction under the International Arbitration Act and the Commercial Arbitration Act is a jurisdiction to stay proceedings in the Court rather than a general power to order that a matter be arbitrated. However, it is far from clear that the Court has no power to make the kind of order sought in Mr Lennox's interlocutory process filed on 13 September. That is not a matter I should decide in the present circumstances, where the point has not been fully argued and the only issue relates to costs. 60 The position is that an application was made which covered some of the ground already covered by Mr Lennox's stay application, since the present proceeding seeks an order restraining the removal of Mr Arkin as a director of TAPL, and so an order staying the present proceeding would leave the issue raised in the application of 13 September as an issue open to be determined by the arbitrator. In these circumstances I have decided that the costs of and incidental to Mr Lennox's interlocutory process filed on 13 September 2002, and the costs of the application for costs, be costs in the proceeding. Funding the reference under Part 72 61 In consequence of the Stay Judgment, the parties are proceeding with a reference under Part 72 before the Hon Andrew Rogers QC as referee (the Hon John Clarke QC having become unavailable). It is necessary for orders to be made under Part 72 rule 6(1) to provide funding for the reference, bearing in mind that whatever orders are made now, there is the prospect of a subsequent application for an order that the costs of the reference, inter alia, be borne by the unsuccessful party under Part 72 rule 6(2). There is no formal application by either side for an order with respect to the cost of funding the reference, but rather that matter has arisen in consequence of my decision in the Stay Judgment. 62 Two factors complicate the issue of funding the reference: first, whether and to what extent TAPL and TNZL should contribute, bearing in mind that one of the issues to be determined is the ownership of a one-third interest in the company; and secondly, the appropriate distribution where there are four defendants and only one plaintiff. 63 The defendants contend that the warring camps are, in truth, ACDT on the one hand and TAPL on the other. This is because TAPL is faced with the prospect that its valuable trade names, trademarks and trade logos may be taken away from it, in circumstances where its Canadian shareholder has joined forces with its competitor. They say that TAPL's economic interest should be reflected by orders requiring it to contribute a substantial part of the costs of the reference. Moreover, say the defendants, the facts relating to ACDT's alleged entitlement to terminate the Distribution Agreement are substantially the same as the facts said to give ACDT an entitlement to relief against Mr Lennox. The defendants contend that in those circumstances, the fairest solution is to put TAPL and TNZL, on the one hand, and Mr and Mrs Lennox, on the other hand, into one camp, and ACDT into the other camp. On this basis, they say that the order should be that half of the cost of funding the reference should be borne by ACDT, one quarter by TAPL and TNZL taken together, and one quarter by Mr and Mrs Lennox taken together. 64 In a facsimile to Cutler Hughes dated 20 September 2002, Allens expressed ACDT's concern about the manner in which the proceeding was being conducted on TAPL's behalf. The letter said: "Our client accepts that TAPL has a legitimate interest in defending claims which affect its commercial interests, such as the question whether our client is entitled to terminate the Distribution Agreement. But where the claims relate to the propriety of the actions of Mr and Mrs Lennox, our client's view remains that it is neither necessary nor appropriate for TAPL to take an active role in, and incur substantial costs of, defending the claims." 65 In its submissions on this question, ACDT has conceded that it should bear 50% of the cost of funding the reference. It submits, however, that it is inappropriate for TAPL or TNZL to bear any of this cost, and that the remaining 50% of the costs of funding the reference should be borne by Mr Lennox. This is on the basis that the principal protagonists in the dispute are ACDT and Mr Lennox, and that in some ways Mr Lennox's interests in the proceeding conflict with those of TAPL. ACDT notes that much of the relief it seeks will require Mr Lennox to account to TAPL for benefits he has obtained, and it is not appropriate that TAPL itself be required to fund such a dispute. 66 It will be seen that in part, the difference between the parties emerges from their inconsistent assessments of the identity of the "true" protagonists. In my opinion ACDT's contention that TAPL and TNZL should pay none of the cost of funding the reference overlooks the economic interest possessed by TAPL and TNZL, as corporate entities, in the outcome of the dispute, and interest acknowledged in Allens' letter of 20 September 2002. ACDT alleges an entitlement to extinguish valuable distribution rights of the companies, and consequently their valuable economic interest in trademarks, trade names and logos. These are direct interests of the corporate entities, distinguishable from the indirect interests of the shareholders of TAPL, whoever they may be. It would be wrong in principle to exclude the companies from any contribution of corporate funds towards the cost of a procedure intended in part to protect those interests, simply because the dispute in question also challenges the position of the present controller of the companies and alleges impropriety against him. 67 I recognise that the interests of TAPL and TNZL do not coincide with the interests of Mr Lennox, and in important respects they conflict with one another. This suggests that both the companies and the personal defendants should be required to contribute to the 50% of the cost of funding the reference not borne by ACDT. The defendants propose that 25% of the cost of funding the reference be borne by TAPL and TNZL together, and that the other 25% be borne by Mr and Mrs Lennox. Equal subdivision between the corporate and personal defendants seems to me to be an appropriate solution, given the difficulty of making any more precise subdivision and given also my view that in principle, it is appropriate for TAPL and TNZL's funds to be applied towards part of the cost. My conclusion, therefore, is to support the defendants' proposal with respect to the cost of funding the reference. 68 The defendants have succeeded on this question, and therefore the costs of and incidental to my determination of the allocation of the cost of funding the reference should be the defendants' costs in the proceeding. Security for costs 69 The defendants have made applications for security for costs against ACDT. Mr and Mrs Lennox seek security in an amount of $199,172. TAPL seeks security in an amount of $1,388,146. The defendants also seek security for the cost of enforcing a judgment for costs against a Canadian corporation, estimated in an affidavit by Mr Higginbotham of Cutler Hughes, made on 3 December 2002, to be in the range $12,890 to $22,419. 70 The application for security for the cost of enforcing a judgment for costs against a Canadian corporation is uncontroversial. ACDT accepts liability to provide security and is prepared to do so at the top of the range estimated by Mr Higginbotham. It proposes that the sum of $22,419 be applied for security, out of an amount of $277,900 held in escrow by Cutler Hughes as consideration for the purported acquisition of ACDT's shares. It is probably unnecessary for the Court to make an order as to the source of the security at this stage. It may be enough (subject to further submissions as to the drafting of my orders) to order that security in the sum of $22,419 be provided by ACDT to the defendants. 71 ACDT has offered to provide security for the costs of TAPL and TNZL in the amount of $393,000, and security for the costs of Mr and Mrs Lennox in the amount of $117,000. These figures represent the total allowable costs of each defendant, estimated by Mr L'Estrange, a partner of Allens, in his affidavit made on 13 December 2002. The defendants have not accepted this offer. 72 The application for security for costs arises out of a transaction carried out under the Ontario Business Corporations Act in 1999, and explained in an affidavit filed on behalf of ACDT by Leslie Rose, a Canadian lawyer. Prior to that transaction, ACD Tridon Inc (Ontario Corporation No 59314) ("ACDT 59314") carried on business in Canada through a wholly-owned subsidiary and was the holding company for shares of a number of foreign subsidiaries, including a minority shareholding interest in TAPL, and it was a party to the Shareholders Agreement and the Distribution Agreement with the Lennox interests. The issued shares in ACDT 59314 were held by Devtek Corporation. In June 1999 Tomkins Canada Acquisition Corporation ("TCAC"), a wholly-owned subsidiary of Tomkins plc, negotiated the acquisition of those shares from Devtek. 73 As originally structured, that transaction would have involved the transfer of ACDT 59314's shares in TAPL, which would have required the consent of Mr Lennox under the Shareholders Agreement. Mr Lennox refused to give his consent except on terms unacceptable to Tomkins plc. As a result of Mr Lennox's refusal, the proposed reorganisation had to be restructured so that there would be no transfer of the shares in TAPL. Accordingly the reorganisation was restructured to provide for the amalgamation of TCAC and ACDT 59314. According to Mr Rose, the effect of the amalgamation was that both the pre-acquisition entities continued as one corporation under the name ACDT Tridon Inc (Ontario Corporation No 1371372). 74 In the course of the amalgamation, the "stated capital" (under Ontario law) of the amalgamating entities and of the amalgamated entity were the subject of various accounting entries. The Business Corporations Act of Ontario does not permit a reduction in the stated capital of a corporation if, after giving effect of the reduction, the realisable value of the corporation's assets would be less than the aggregate of its liabilities. The concern of the defendants is that, notwithstanding that legislation, the stated capital of the amalgamated entity that is the present plaintiff, ACDT, may have been wiped out. 75 TAPL, TNZL and Mr and Mrs Lennox rely on the affidavit of Paul Carter of PricewaterhouseCoopers made on 2 October 2002, to which he has annexed his report dated 11 September 2002. They say that the effect of Mr Carter's evidence is that the entire share capital of ACDT was wiped out after the Canadian amalgamation. In paragraph 40 of the report, Mr Carter says: "40 In my opinion: (a) assuming the statement in Allens Arthur Robinson's letter of 15 August 2002 to the effect that the correct capital of TCAC immediately before the amalgamation with OldACDT was $33,236,335 is correct, then: (i) the capital of NewACDT post amalgamation is negative which is impossible, and (ii) therefore the NewACDT financial statements following the amalgamation are either incorrect, or contain transactions the details of which have not been provided to me; or (b) the correction to TCAC's Amalgamation Worksheet capital as explained by Allens Arthur Robinson is in error or incomplete and is not supported by the documents presently available to me as set out in Appendix A." 76 On its face, the principal thrust of paragraph 40 of Mr Carter's report is that he has insufficient information to understand the relevant effect of the amalgamation. He expressly dismisses the possibility that the capital of "NewACDT" after the amalgamation was negative. In other parts of his report, Mr Carter pointed to financial documents which indicated that ACDT's post-amalgamation share capital was $15.647 or $15.797 million. 77 Subsequently ACDT filed and served Mr Rose's affidavit, which explained the share transactions associated with the amalgamation, annexing some documents that were not originally available to Mr Carter, and demonstrating how ACDT's post-acquisition share capital of $15.647 million was calculated. On 7 November 2002, having reviewed Mr Rose's affidavit, Mr Carter swore a further affidavit annexing a supplementary report of the same date. In his supplementary report, Mr Carter confirmed that Mr Rose's analysis was consistent with the financial statements, and that the summary he had made in his earlier report showing a post-amalgamation share capital of ACDT of 15.797 million was correct. Consequently, the evidence as a whole indicates that the share capital of ACDT is no less than $15.647 million. 78 My conclusion is that the specific basis upon which the defendants have applied for an order for security for costs, namely paragraph 40 of Mr Carter's first report, is not a sound basis for the Court to make an order for security of the magnitude sought by the defendants. However, while the evidence before me is difficult and leaves some scope for interpretation, on balance there is, in my opinion, a proper foundation for an order for security for costs going beyond the costs of enforcing a judgment in Canada. 79 I refer, in particular, to paragraphs 35 (b), 39 and 40 of Mr Rose's affidavit. It appears that a reduction in the stated capital of ACDT was authorised by its shareholder at a time when the realisable value of its assets (after giving effect to the reduction in stated capital) would have been significantly less than the balance of transaction indebtedness, with the result that the reduction could not be carried out without violating the Business Corporations Act. The corporate controller of the Canadian branch of Tomkins decided that he would "treat the transfer of the Transferred Assets as constituting repayment of the full amount of the Transaction Indebtedness and as a return of stated capital in the amount of $17,438,950". This seems to me to be unusual in a manner warranting further investigation. The evidence about stated capital does not directly bear on whether ACDT would be able to meet an order for costs made against it in the present proceeding, but the Business Corporations Act provides a linkage between stated capital and solvency which makes the stated capital relevant to the question of security for costs. 80 An assessment of the correct figure for security is not easy, upon the evidence before the Court at this stage. The matter is rendered more difficult by the considerations that the defendants should not have any security for the costs in respect of their cross-claims, nor any security in respect of the Share Divestiture Claim, in which ACDT is essentially defending itself against Mr Lennox's previous action against it: cf Willey v Synan (1934) 54 CLR 175, 184-5. Those considerations imply that there should be an apportionment of the total allowable costs as between the cross-claims, the Share Divestiture Claim and the remainder of the proceeding. 81 Mr L'Estrange has proposed an apportionment in the ratio 2:4:11, and has given reasons. He has also made some estimates of costs upon the basis of which ACDT made its offers recorded above. I find Mr L'Estrange's evidence plausible and I accept it. He has made a careful and detailed assessment of the likely length of the hearing before the referee, and he has made costs estimates based on the assumption that (contrary to ACDT's submission) TAPL and TNZL will have primary carriage of the defendants' case. 82 I have decided, in reliance upon Mr L'Estrange's evidence, to make orders that ACDT provide security for the costs of TAPL and TNZL in the amount of $255,000, plus security for the costs of Mr and Mrs Lennox in the amount of $75,000. I shall also make an order requiring ACDT to provide security to the four defendants in the additional sum of $22,419, in respect of the costs of enforcing any judgment for costs in Canada. I shall take up a suggestion made by ACDT in its submissions, by granting liberty to the defendants to apply for further security if and when the allowable costs are about to exceed those amounts. 83 ACDT's submissions on security for costs have been successful, because my orders provide security in amounts less than ACDT's offer. I shall order that the costs of and incidental to the security for costs application be ACDT's costs in the proceeding. Application for leave to serve a subpoena on Tridon Investments Limited 84 The application was resisted and I decided, delivering my reasons for judgment on 3 February 2003, that if ACDT applied to amend the subpoena in certain ways, I would grant the leave that it sought. Although it was necessary for ACDT to amend the subpoena, its application for leave was resisted by the defendants on grounds which, by and large, failed. Therefore I shall order that ACDT's costs of and incidental to this application for leave be ACDT's costs in the proceeding. Application to set aside subpoenas 85 TAPL has moved to set aside subpoenas issued to other Controlled Entities. ACDT has submitted that the categories of documents sought in the remaining subpoenas are the same as those sought from Tridon Investments Limited, and they are relevant for similar reasons. It appears to me that this submission is correct, and therefore TAPL's application to set the subpoenas aside should be dismissed. I shall make an order accordingly, and I shall order that ACDT's costs of and incidental to TAPL's application to set aside the subpoenas be ACDT's costs in the proceeding. Conclusion 86 At one stage counsel for the defendants suggested that, having reached decisions on the various costs applications, I should give an indicative opinion with respect to the costs of the cost applications, allowing the parties 14 days to respond to the indicative opinion before making final orders. I do not regard that process as either necessary or likely to be helpful to me, notwithstanding that it would be likely to generate additional bulky folders of submissions and annexures. I have reached conclusions about the costs of various aspects of the cost applications, and I have expressed my decisions at appropriate points in this judgment. 87 I shall direct ACDT to prepare draft short minutes of orders to reflect these reasons for judgment, and submit them within seven days to my associate and the solicitors for the defendants. I shall direct the defendants by their solicitors to send to my associate and ACDT's solicitors their written comments on the draft within the ensuing seven days. It is my intention to make orders in chambers after the expiration of 14 days from the date of this judgment, unless I decide that there is some controversy outstanding that requires further hearing.

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