Barboza v Blundy & Ors [2021] QSC 82

"[1] The plaintiff was a member and director of the second defendant (the Company) from the time of its establishment in 2005 until about November 2014 when the majority shareholder (the third defendant (BNT)) acquired her shares by exercising a call option under a shareholders' agreement.

[2] The first defendant, Mr Blundy, is and was a highly successful retailer and entrepreneur. He was the majority shareholder of the fourth defendant (BBRC) which was the parent company of BNT.

[3] In this proceeding, which was commenced by claim in 2019, the plaintiff complains about particular conduct of Mr Blundy, BBRC and BNT during the last year of her involvement with the Company. Essentially, her case is that Mr Blundy imposed an accelerated domestic expansion plan on the Company over her opposition to that course. She says that the level of expenditure associated with that course operated to her disadvantage because it reduced the amount she received on exercise of the call option.

[4] She seeks to characterise the conduct of which she complains as oppressive conduct within the meaning of s 232 of the Corporations Act 2001, or as unconscionable conduct in contravention s 12CB of the Australian Securities and Investments Commission Act 2001 (the ASIC Act).

(a) orders pursuant to s 233 of the Corporations Act 2001 that BNT pay to her the difference between the amount which it paid to acquire her shares and what she says was the actual value of those shares as at the date of acquisition; or

(b) pursuant to s 12GF of the ASIC Act, recovery of damages from Mr Blundy, BNT and the fourth defendant (BBRC) in the same amount, for loss suffered consequent upon conduct by them in contravention of s 12CB of the ASIC Act."

• [3] The conduct said to be both oppressive and at the core of the unconscionability case was a "Decision" by Mr Blundy to impose on the Company, and over the plaintiff's opposition, a transfer of some staff and some leases from Mr Blundy's failing "Diva" business to the Company (thereby enabling the acceleration of the Company's domestic expansion). The "Decision" was said by the plaintiff to have been made by Mr Blundy in the period encompassing a strategy meeting in December 2013 and up to and including March 2014.
• [4] Critical findings of fact which I made adverse to the plaintiff's case included:

"[146] First, I have rejected the plaintiff's version of what happened at the December 2013 strategy meeting after Mr Blundy explained that he was considering closing the Diva business and that he thought that presented an opportunity to the Company.

[147] Second, I have rejected the plaintiff's characterisation that what occurred at the meeting and in the months afterwards was Mr Blundy deciding to impose the proposed transfer of some Diva staff and some Diva leases on the Company regardless of the plaintiff's opposition.

[148] Third, I have found that the opportunity of taking over some Diva staff and some Diva leases was thought by all the directors of the Company at the time (and found to be in hindsight) a good opportunity for the Company and in the best interests of the Company.

[149] Fourth, I have found that the plaintiff did not oppose the uptake of some Diva staff and some Diva leases. To the contrary, she and Ms Monaghan were enthusiastic participants in the steps which the Company took to take advantage of the Diva opportunity.

[150] Fifth, Mr Blundy made a decision in September 2014 consequent upon the continuation of the acrimonious working relationship between the Company's joint managing directors that the best interests of the Company required a choice to be made between them and required the choice to favour Ms Monaghan and not the plaintiff.

[151] Sixth, Mr Blundy's choice in September 2014 between the Company's joint managing directors was a genuine choice made for the reasons he gave.

[152] The pleaded oppression case rests on the characterisation of events which occurred at and after the December 2013 strategy meeting as Mr Blundy having made the pleaded "Decision". But the essential problem is that the "Decision" did not occur. The plaintiff's pleaded narrative that Mr Blundy imposed on the Company a decision to take over Diva leases and Diva staff over the plaintiff's objection was a false narrative.

[153] What really happened was that Mr Blundy correctly identified that the problems being encountered by his Diva business presented an opportunity to the Company. All relevant decision makers agreed. In particular, the plaintiff and Ms Monaghan were enthusiastic. The Company proceeded to take advantage of the opportunity so identified and it did so by a process in which it identified the particular leases and particular staff suitable to it. Based on the facts known to the parties at the time they were so conducting themselves, the Company's decision to take on Diva leases and Diva staff to the extent it did was embraced, correctly, as a decision properly taken in the Company's best interests.

[154] The plaintiff's concerns arose later and for different reasons: see the fifth and sixth critical findings I have identified at [150] and [151] above. It is true that the expenses associated with having expanded in the way the Company did operated to reduce the NPAT and, accordingly, the calculated call option value and the payout which the plaintiff received. But none of that makes the conduct which the plaintiff complains of commercially unfair as at the time the conduct occurred."

• [5] For reasons which I expressed at length in my judgment, I found that the plaintiff's allegations of oppressive conduct and unconscionable conduct could not be supported. Accordingly, the plaintiff's case failed on both grounds.
• [6] I ordered that there must be judgment for the defendants against the plaintiff and that I would hear the parties as to costs.
• [7] Once I published my reasons, I was persuaded to make directions for the delivery of written submissions on the question of costs.
• [8] I received written submissions on behalf of the defendants which sought orders that -

(a) the plaintiff pay the defendants' costs of the proceeding until 8 November 2019 or, alternatively, until 25 June 2020, on the standard basis; and

(b) the plaintiff pay the defendants' costs of the proceeding after 8 November 2019 or, alternatively, after 25 June 2020, on the indemnity basis.

• [9] The two dates mentioned were the dates of consecutive offers to settle which the defendants had made to the plaintiff before trial. The first was made a little less than 9 months before trial and the second was about 5 weeks before trial. Each offer was to settle on a "walk away" basis. The plaintiff failed to respond to either offer within time and they lapsed. The defendants argued that the plaintiff should be regarded as having rejected the offers and that that conduct should be regarded as so unreasonable as to warrant an order requiring the plaintiff to pay indemnity costs after the date of the unreasonable rejection. The obvious intention of seeking orders in the alternative was in case I rejected the argument in relation to the first offer, but accepted it in relation to the second offer.
• [10] The plaintiff's solicitors advised me that the plaintiff had instructed them not to respond to the defendants' submissions with respect to the costs of the proceeding.

• [11] The defendants' first offer was an open offer made on 8 November 2019, a little less than 9 months before the trial and at a time when disclosure was substantially complete. The offer was open for acceptance for 14 days, until 22 November 2019.
• [12] The offer outlined why the defendants suggested that the plaintiff would fail at any trial. In support of that contention, the offer advanced reasons which were the equivalent of two critical propositions which I ultimately accepted in my judgment on the merits, namely: (1) the plaintiff had supported the Company taking advantage of the Diva opportunity;[2] and (2) there was a bona fide and not oppressive reason for the acquisition of the plaintiff's shares.[3] Notably, the offer also pointed out that there was no documentary support for the plaintiff's allegations and, in particular, that there was "not a shred of documentary evidence to show" that anyone had any objection to the Company taking advantage of the Diva opportunity in the way it did. I made equivalent points in my judgment on the merits.[4]
• [13] The offer proceeded to contend that all parties had expended substantial costs and would continue to do so should the matter proceed to trial. In order to avoid those costs, the defendants said they were willing to agree to a settlement on the basis that the plaintiff discontinue the proceeding against the defendants, that each party bear their own costs, and that the plaintiff agreed to release the defendants from any claims she might have against them related to the subject matter of the proceeding. This was said to represent a meaningful compromise because the defendants' costs and disbursements to the date of the offer were suggested to be approximately $350,000. (The evidence before me supports the suggestion which had been made about the quantum of the defendants' costs and disbursements at the time of the offer.)
• [14] The offer was expressly stated to have been "made in accordance with the principles set out in Calderbank v Calderbank [1975] All ER 333". It contended that it would be unreasonable for the plaintiff to not accept the offer at this stage in the proceeding. The specific reference to Calderbank v Calderbank and the suggestion that failure to accept would be unreasonable would have made it obvious to the plaintiff's legal advisers that the defendants would, in the event that they succeeded at trial, seek costs on a basis more favourable than the usual order which would require the payment of costs on the standard basis.
• [15] The offer ended with the proposition that the defendants' solicitors were instructed to inform the plaintiff that "... the above offer is not negotiable and there are no circumstances in which our clients will pay your client any amount of money to settle the Proceeding".
• [16] The plaintiff did not accept the first offer within the time it was open and it lapsed. I agree with the defendants that the plaintiff should be regarded as having rejected the offer.
• [17] The defendants' second offer was marked "Without prejudice save as to costs". It was expressly made pursuant to the Uniform Civil Procedure Rules 1999 and, like the first offer, in accordance with the principles set out in Calderbank v Calderbank. It was made on 25 June 2020, which was approximately five weeks before the commencement of the trial on 3 August 2020. It too was open for 14 days, until 9 July 2020. By the time of the second offer, disclosure was substantially complete, the defendants had served their lay evidence (save for supplementary statements) and the joint expert had delivered his first report.
• [18] Again the offer was to settle on the basis that the plaintiff discontinue the proceeding against the defendants, that each party bear their own costs, and that the plaintiff agreed to release the defendants from any claims she might have against them related to the subject matter of the proceeding. The offer suggested that it should be regarded as a meaningful compromise because the defendants' costs and disbursements were suggested to be in excess of $1,000,000. (The evidence before me supports the suggestion which had been made about the quantum of the defendants' costs and disbursements at the time of the offer.)
• [19] The second offer did not repeat the explanation previously given as to why it would be unreasonable not to accept the offer. It suggested only that given the stage that had been reached, the parties would be well placed to form an advanced view on their prospects of success. It flagged the defendants' intention to seek a special costs order in the event that the defendants' succeeded at trial.
• [20] The plaintiff did not accept the second offer within the time it was open and it lapsed. I agree with the defendants that the plaintiff should be regarded as having rejected the offer.
• [21] The defendants' third offer was made on an open basis by email at 9:36pm on 3 August 2020, following the plaintiff giving evidence on the first day of trial. It was only open for acceptance until 2pm the following day. It again proposed "to settle the proceeding, on a full and final and without admissions basis, on terms that each party bears their own costs of the proceeding". There was no specific reference to Calderbank or to costs consequences of rejecting the offer.
• [22] The plaintiff did not accept the third offer within the time it was open and it lapsed. I agree with the defendants that the plaintiff should be regarded as having rejected the offer.

• [23] I summarised the law which is relevant to the present question in S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323, in these terms (emphasis in original and footnotes omitted):[5]

"[8] The relevant considerations were identified in J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23 at [5] to [6] per Holmes JA and Applegarth and Boddice JJ, and in Hadgelias Holdings and Waight v Seirlis [2014] QCA 325 at [11] to [12] per Holmes JA with whom Gotterson and Morrison JJA agreed. In each case, the Queensland Court of Appeal followed the approach taken by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.

[9] The following propositions may be distilled from those appellate decisions.

[10] First, the usual rule is that where the Court orders the costs of one party to litigation to be paid by another party, the order is for assessment of those costs on the standard basis.

[11] Second, the Court will depart from the usual rule where the circumstances of the case warrant that course.

[12] Third, one feature which may justify a departure from the usual rule is the rejection of a Calderbank offer to compromise. However, it is wrong to think that an offeree's rejection of a Calderbank offer gives rise to a presumption that the offeree should pay the offeror's costs on an indemnity basis if the offeree obtains a less favourable result than contained in the offer. Rather, the correct approach is to consider whether the rejection of the Calderbank offer, in all the circumstances, justifies a departure from the usual rule.

[13] Fourth, the balance between the competing policy considerations of, on the one hand, appropriately encouraging settlement and, on the other, not discouraging potential litigants from bringing their disputes to the courts, is found by applying a test of "reasonableness". The policy rationale for requiring the offeree to indemnify the offeror for costs incurred after the offeree's unreasonable rejection of an offer is that, from the time of the unreasonable rejection, notionally the real cause and occasion of the litigation is the unreasonable attitude adopted by the offeree.

[14] Fifth, deciding the critical question of whether the offeree's rejection of the offer is unreasonable in all the circumstances will always involve matters of judgment and impression. However, the discretion as to costs must be exercised judicially and is subject to review in accordance with the principles set out in House v The King (1936) 55 CLR 499 at 505. Without being exhaustive concerning the considerations which should be taken into account, a court should ordinarily have regard to at least the following matters:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed; and

(f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree

(a) The first offer was made at a time when the disclosure was substantially complete. I observe that pleadings had also closed.

(b) The terms of the offer explained critical matters fatal to the plaintiff's case which were entirely consistent with the way in which the trial and my judgment played out.

(c) The time allowed to accept the first offer was 14 days. Given the stage at which the litigation had reached, the plaintiff ought to have been in the position to appreciate the weakness of her case. She should not have regarded it as having realistic prospects.

(e) Given the view she should have had as to her prospects, the plaintiff was facing the prospects of having to pay her own costs and to be exposed at least to a costs order requiring her to pay costs on a standard basis. At the time of her offer, the effect of the defendants' offer was to release her from that exposure. I agree with the defendants that the offer was to be regarded as a meaningful offer.

(f) Although an application for indemnity costs was not foreshadowed in terms, the plaintiff was legally represented, and the reference to Calderbank v Calderbank and it being unreasonable not to accept the offer was sufficient to put the plaintiff on notice that in the event of failure she would face an application that costs be awarded against her on an indemnity basis.

• [25] Those matters alone demonstrate a good case for a conclusion that the plaintiff's rejection of the first offer was unreasonable. Further, the fact that the plaintiff has chosen neither to adduce evidence nor to advance any submissions in response to the defendants' application for an indemnity costs order justifies an inference that she could not advance any evidence which would have assisted her case. In my view the proper conclusion is that unreasonableness is demonstrated as at the date of the first offer.
• [26] The failure to accept the second offer demonstrated that the plaintiff's unreasonable attitude continued. So did the failure to accept the third offer.
• [27] I form the view that the real cause and occasion of the litigation after the date of the first offer must be taken to have been an unreasonable attitude which was adopted and continued by the plaintiff.
• [28] In my view, the plaintiff's rejection of the Calderbank offer of 8 November 2019, in all the circumstances, justifies a departure from the usual rule.

(a) The plaintiff must pay the defendants' costs of the proceeding until 8 November 2019, on the standard basis.

(b) The plaintiff must pay the defendants' costs of the proceeding after 8 November 2019, on the indemnity basis.

[1] Barboza v Blundy [2021] QSC 68 at [1] to [5].

[2] I have used the language of my judgment on the merits: see Barboza v Blundy [2021] QSC 68 at [84] and [148]-[149]. The offer referred to "the absorption of the Diva assets". For present purposes they may be regarded as the same thing.

[3] See Barboza v Blundy [2021] QSC 68 at [118]-[128] and [150]-[151].

[4] See Barboza v Blundy [2021] QSC 68 at [63], [65], [69], [84], [85]

[5] [2020] QSC 323 at [8] to [14].