Bostik of Australia Pty Ltd v Liddiard

Judgment 1In a judgment delivered on 30 August 2011 ([2011] NSWCA 256; (2011) 86 ACSR 119), the Court of Appeal ordered that One Australia Pty Limited ("One Australia"), an entity associated with Mr Sayer, purchase free from encumbrances the shares in Global Mortgage Equity Corporation Pty Limited ("GMEC") owned by Australian Financial Services Corporation Pty Limited ("AFSC"), an entity associated with Mr Tomanovic in GMEC. The Court of Appeal ordered that those shares be purchased at a price equal to 45% of the net value as at 30 June 2010 of GMEC, subject to specified adjustments. Paragraph 4(c)(i) of the orders made by the Court of Appeal provided for the valuation to be undertaken by reference to the market value of the whole share capital of GMEC. Paragraph 4(c)(ii) of those orders required that the market value of GMEC be determined subject to adjustment for the net liabilities referred to in that paragraph. Paragraph 4(c)(iii) of those orders required that that market value not be subject to any adjustment with respect to oppressive conduct. Paragraph 4(c)(iv) of those orders provided for the market value of GMEC to be determined after making an adjustment for certain legal costs in the conduct of the three proceedings referred to in that order, and was also subject to an adjustment with respect to any net liabilities of GMEC or their subsidiaries to any of Mr Sayer, One Australia, Mr Tomanovic or AFSC. Paragraph 4(g) of the Court of Appeal's orders provided for a set-off between the amount owing by Mr Tomanovic and ASFC to Mr Sayer, Ken Sayer Investments Pty Limited and Mortgage House Australia Pty Limited pursuant to an earlier judgment delivered in proceedings 297497 of 2009 ("2009 proceedings") and the amount owing to One Australia under the buy-out order, such that only the net amount after that set-off was liable to be paid. The Court of Appeal remitted the matter to the Equity Division for determination of these amounts. 2I delivered judgment on 1 November 2013 ([2013] NSWSC 1586) ("primary judgment") in respect of an application to determine the amount payable pursuant to the Court of Appeal's orders. In summary, I held that the net market value of shares in GMEC as at 30 June 2010 was $2.9 million and that the amount of 45% of the net value of the relevant shares, as contemplated by the Court of Appeal's orders, was $1,305,000. I invited further submissions as to the treatment of interest that had accrued on the judgment in the 2009 proceedings. I observed that, after the set-off required by the Court of Appeal's orders, an amount would be payable by the Plaintiffs to the Defendants in the order of $510,924 and also invited further submissions as to a claim made by the Plaintiffs for interest on the amount of the valuation of GMEC's shares since 28 June 2010. I requested the parties to bring in agreed Short Minutes of Order or, if no agreement was reached, their respective drafts and short submissions as to the differences between them and also to address the question of costs. 3Several matters have now been agreed between the parties' Counsel, and I should record those matters for completeness. First, the parties' Counsel have agreed the interest calculation for the purposes of order 4(b) made by the Court of Appeal, namely that the amount of interest that has accrued on the judgment in the 2009 proceedings from and including 1 July 2010 is $565,043. Second, for the purposes of order 4(g)(i) made by the Court of Appeal, the parties' Counsel have agreed that the amount of the judgment debt in the 2009 proceedings is $1,765,004.64; that interest on that judgment is $615,962.44; and the aggregate amount of the set-off required by the Court of Appeal's order 4(g)(i) is $2,380,967.08. Counsel are agreed and I accept that the reference to $2,380,867 in paragraph [105] of the primary judgment is incorrect. The parties' Counsel are also agreed that, for the purposes of order 4(g) made by the Court of Appeal, the net amount payable by the Plaintiffs to the Defendants after the set-off is $510,924, the amount foreshadowed in the primary judgment. 4The parties are not agreed as to the appropriate form of orders to be made and I will address the differences between their respective draft orders below. The parties are not agreed as to the form of costs orders, and each party seeks a costs order against the other for costs incurred in carrying out the valuation exercise and the proceedings before me. In this further judgment, I deal with the form of orders to be made following the primary judgment and with costs. Form of orders 5The Plaintiffs seek an order and declaration that the value of the shares owned by AFSC in GMEC as at 30 June 2010, determined in accordance with the prescriptions specified in order 4(c) made by the Court of Appeal, is $1,305,000. The Plaintiffs submit that it is appropriate to make a declaration as to that value because the determination of that value was a primary purpose of the Court of Appeal's orders remitting the proceedings to the Equity Division. The Defendants submit that it is unnecessary and inappropriate for the Court to order and declare that matter where the relevant questions of fact were determined in the primary judgment. I note that the determination of the value of the GMEC shares was undertaken in accordance with relatively complex directions provided by the Court of Appeal in its orders of 30 August 2011, and that the value of the GMEC shares is an important element, but not the only element, in the calculation required by the Court of Appeal's orders. It seems to me that there is little utility in declaratory relief that reflects only part of the calculation required by the Court of Appeal's orders, and such a declaration could provide no more than a possibly oversimplified statement of the outcome of the matters determined in the primary judgment. It does not seem to me to be necessary to make a declaration, since the determination required by the Court of Appeal's orders will be given operative effect by lifting the stay of the judgment in the 2009 proceedings to allow enforcement of that judgment in respect of the amount so determined in my primary judgment 6The Plaintiffs contend that the orders made by the Court should also expressly note certain matters, including, first, the terms of the purchase of shares in GMEC owned by AFSC pursuant to order 4(b) of the Court of Appeal's orders, as implemented by the determination of the amount of the value of the shares in the judgment. The Defendants submit that that suggested note is inappropriate, because that matter is already addressed by order 4(b) made by the Court of Appeal and the amount of 45% of the net value of GMEC shares is determined by my judgment. The suggested note seems to me at best unnecessary and at worst capable of giving rise to confusion, so far as it would reflect partly matters that were determined by the Court of Appeal in its 2011 orders and partly the result of the task which I had performed when the matter was remitted to the Equity Division. I should not make orders that merely repeat matters previously determined by the Court of Appeal in 2011 in a manner that might cause confusion as to what issues might properly be raised in any appeal from the primary judgment, as distinct from the Court of Appeal's earlier decision. 7The Plaintiffs submit that the orders made by the Court should also note that no shares and units were transferred to AFSC by One Australia or Mr Sayer. The Defendants submit that that suggested order is inappropriate, where the parties had agreed and recognised in the hearing before me that the amount referrable to those shares and units was nil, and I recorded the fact that the parties proceeded on that basis, in accordance with the agreement of their respective accounting experts, in paragraph [103] of the primary judgment. I do not consider that any further note as to that matter is required. 8The Plaintiffs submit that the orders made by the Court should also note the provision for set-off of the amount payable by One Australia to AFSC against the amount payable by Mr Tomanovic and AFSC under the judgment in the 2009 proceedings. The Defendants submit, and I accept, that that suggested note simply repeats order 4(g) made by the Court of Appeal. There is no reason for me to repeat, in the orders that I make, matters that the Court of Appeal determined in 2011, as distinct from matters determined by the primary judgment, and my doing so might well cause confusion in any appeal from my decision as noted above. 9The Defendants propose that an order should be made requiring that, within 10 days of the orders, AFSC execute in favour of One Australia, as transferee, a transfer in proper form of all shares held by AFSC in GMEC and deliver that transfer and share certificates that evidence those shares to One Australia. The Plaintiffs submit that there is no need to order the transfer of AFSC's shares in GMEC to One Australia because the Court of Appeal has ordered a mandatory purchase. It seems to me that such an order should be made, since the Plaintiffs will obtain the benefit of a set-off of the value of the shares to be transferred in determining the amount payable by them and there should be no uncertainty that they are obliged to transfer those shares promptly, consistent with their obtaining the benefit of that set-off. Interest 10It is common ground between the parties that the date taken for the calculation of interest on the 2009 judgment is immaterial, because interest on that judgment from and including 1 July 2010 is to be set-off against the purchase price of the shares in GMEC. Nonetheless, the parties have agreed that the amount of interest that has accrued on the judgment in the 2009 proceedings is $565,043 as noted above. 11I noted in the primary judgment that the Plaintiffs contended, in the hearing before me, that they should have interest on the amount of the valuation of GMEC's shares since 30 June 2010. The Defendants contended that the Plaintiffs should not separately have that interest since the approach adopted in paragraph 4(b) of the Court of Appeal's orders provided a surrogate for such interest. The Defendants contended that that approach reflected the fact that amounts previously paid by Mr Sayer's interests to Mr Tomanovic's interests were paid, in effect, as an advance payment of the purchase price for the shares in GMEC and Mr Tomanovic's interests have had the use of that money since they received it (Court of Appeal judgment [32]). The Defendants also pointed out that the Court of Appeal's orders had the commercial effect that interest ceased to run on the 2009 judgment after 30 June 2010, by adjusting the purchase price for the GMEC shares to be acquired by One Australia by an amount that cancels out post-judgment interest from that date. They contended that, for the Plaintiffs to have interest on the valuation amount without being required to pay interest on the amount of the 2009 judgment, would be contrary to the intent of the Court of Appeal's orders. The Plaintiffs did not respond to this submission before me. This submission seems to me to reflect the logic of the Court of Appeal's judgment and orders and it does not appear that the Plaintiffs now contend to the contrary. The Plaintiffs should therefore not have interest on the amount of the valuation of GMEC's shares since 30 June 2010. Lifting stay of judgment in 2009 proceedings and stay of my judgment pending appeal 12The Defendants sought an order that the stay of the judgment in the 2009 proceedings be lifted in respect of the sum of $510,924 now agreed to be the net amount payable by the Plaintiffs to the Defendants pursuant to the Court of Appeal's orders and my primary judgment, with effect that the judgment in that proceeding can be enforced as to that amount together with any interest accruing on that amount at the prescribed rate from the date of these orders. The stay of that judgment ordered by the Court of Appeal was on terms that it continue until the earlier of the purchase of the GMEC shares by One Australia or an order of a Judge of the Equity Division. Accordingly, as the parties agreed, I have the power to order that that stay should now be terminated, and I accept that such an order should be made. 13The Plaintiffs seek an order that execution on the 2009 judgment be stayed for a limited time to allow them to consider whether to seek a further stay in connection with any appeal from the primary judgment and this judgment. The Plaintiffs submit that the matters determined by the primary judgment have significance for them; that the proceedings involved a number of complex issues; and that the Defendants' interests are protected because, they suggest, the Defendants are likely to be able to set-off the amount payable to them as a result of my judgment against orders for costs made in favour of the Plaintiffs in the Court of Appeal proceedings. Mr Lee, who appeared with Mr Cowpe for the Defendants, did not resist a stay for a limited time on that basis. Given the time of year, the parties were agreed that it would be convenient that such a stay should continue to mid February 2014 and I will order such a stay. Costs 14As I noted above, each party seeks a costs order against the other for costs incurred in carrying out the valuation exercise and the proceedings before me. I should first refer to an important observation made by the Court of Appeal to which both parties referred in submissions before me. In its judgment ([2011] NSWCA 256; [2011] 86 ACSR 119), Campbell J (with whom Macfarlan and Young JJA agreed) observed at [42]) that: "In my view, it is not appropriate to pre-empt the judge who hears or has control of the valuation process from ultimately making such order as seems to that judge appropriate concerning the costs of the valuation process. The valuation process is an adjunct of the appeal and, as appears below, I have concluded that the Sayer Interests should bear the costs of the appeal. As also appears below, I have concluded that the Sayer Interests should not bear the whole of the costs of the trial, for reasons connected with the multiplicity of issues involved in the trial and the failure of the Tomanovic Interests concerning some of them. However, those reasons for denying the Tomanovic Interests the full costs of the trial seem unlikely to have any bearing on what costs are incurred, and why, in the valuation process. All these matters may well mean that the starting point for the judge deciding how the costs of the valuation process should be borne would be that, if the valuation process were to go smoothly and efficiently, with both parties operating reasonably, and no offers of compromise or Calderbank letters entering into the question, it would be the Sayer Interests who should bear the costs of the valuation process. However, it is not possible to forecast now, and embody in an order, all the contingencies that might ultimately affect the appropriate order concerning the costs of the valuation, and result in that starting point being departed from. Further, it is not possible to be confident that no event will arise that makes what now seems to be a likely starting point for consideration of the costs of the valuation process to become inappropriate." 15This observation recognises that, in a case where a plaintiff succeeds in establishing oppression and the Court makes an order that the defendant should buy out the plaintiff's shares at a value determined by the Court , the plaintiff would in the ordinary course be awarded the costs of the proceedings on the basis that costs follow the event. It has not been suggested that any relevant offers of compromise or Calderbank letters were made or sent in this case to displace that principle. 16I should also refer to the wider principles that I must apply in making an order for costs. Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court; and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 17There are, of course, several well-recognised principles applicable to an order for costs, including that costs are awarded to compensate the successful party for the expense of being put to the necessity of litigation; a wholly successful defendant should ordinarily receive its costs unless good reason is shown to the contrary; and the discretion to order costs must be exercised judicially and not against the successful party except for some reason connected with the proceedings: Milne v Attorney-General (Tasmania) (1956) 95 CLR 460 at 477; Oschlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 97-98 per McHugh J, at 129-123 per Kirby J; Ruddock v Vardalis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at 234. In Howard's Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J observed at [17] that: "The overriding principle that costs are in the discretion of the court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding." 18In Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136, Toohey J in turn observed that: "1 Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47. 2 Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar (1893) 1 QB 564. 3 A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, 'issue' does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 SASR 4 at p 12." 19The authorities recognise that a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues, and it may be appropriate to deprive a successful party of costs or a portion of its costs if the matters upon which it was unsuccessful took up a significant part of a trial, either by way of evidence or argument: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998); James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]; Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306 at [24]; Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6]; Short v Crawley (No 40) [2008] NSWSC 1302 at [32]; Bostik of Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]; Perochinsky v Kirschner (No 2) [2013] NSWSC 837 at [13]-[16]. In particular, an issue by issue approach may be adopted if it will allow a fairer result than giving a party all of its costs: Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [17]; Perochinsky v Kirschner (No 2) above at [5]. 20The Plaintiffs seek an order that the Defendants pay the costs of proceedings consequent on their notice of motion filed on 3 December 2012 seeking a determination of the valuation of the relevant shares, on the basis noted by the Court of Appeal. On the other hand, the Defendants contend that Mr Tomanovic and AFSC should pay One Australia's costs incurred from 31 August 2011 on an ordinary basis, as agreed or assessed. They submit that the Plaintiffs did not act efficiently or reasonably in going about the valuation process and refer to several matters to which I had referred in the primary judgment in respect of the valuation propounded by the expert accounting witness called by the Plaintiffs (Judgment [27]-[38], [57]-[86]). The Defendants also refer to various submissions advanced by the Plaintiffs, which I had not accepted in the primary judgment, as indicating that the Plaintiffs' approach to the valuation process was "wholly unreasonable". 21The Plaintiffs respond that they did not act unreasonably in the conduct of the proceedings in retaining and relying upon the report of the accounting expert who they had retained, which involved the application of his expertise, notwithstanding that the Court accepted the methodology propounded by the expert retained by the Defendants rather than the methodology for which the accounting expert retained by the Plaintiffs contended. They point out that many of the criticisms advanced by the Defendants are not of the Plaintiffs' conduct of the proceedings but of the expert evidence led by the accounting expert they retained and also respond to particular criticisms made of that evidence. They draw attention to the observation of Beazley JA (as her Honour then was) (with whom Barrett JA and Sackville AJA relevantly agreed) in Keddie v Stacks/Goudkamp Pty Ltd [2012] NSWCA 254 at [153] that: "A solicitor, in the preparation of a claim, is entitled to rely upon the expert views expressed by witnesses with expertise in a relevant field of inquiry." I should proceed on that basis, where it is a considered observation of an appellate court. 22I also accept, as Mr Gray (who appears for the Plaintiffs) points out, that the same logic must generally extend to a party who conducts his or her case in accordance with the position advanced by an expert witness with expertise in a relevant field of inquiry and, implicitly, upon the advice of legal representatives who are generally entitled to rely upon such views. I accept that it cannot be said that the Plaintiffs acted unreasonably simply because they advanced an approach supported by expert evidence and the Court has preferred the different approach supported by the expert evidence called by the Defendants. However, I do not understand the view expressed by the Court of Appeal in Keddie v Stacks/Goudkamp Pty Ltd above to prevent a court having regard to other relevant matters in assessing whether a party's conduct is reasonable, or to suggest that a party or its advisers should not be alert to any obvious difficulties with the logic of the position adopted by an expert. 23The Defendants also submit that the Plaintiffs, and their accounting expert's, reliance on GMEC's balance sheet as a valuation could have been avoided by taking a witness statement from GMEC's auditor, who was ultimately called on subpoena and gave evidence that was adverse to that approach. I do not consider that the Defendants' criticism of the Plaintiffs' conduct in that regard provides any real support for an order for costs against the Plaintiffs, since the auditor's evidence was relevant to, but not determinative of, the outcome as to this issue. Even if the Plaintiffs had been able to obtain a witness statement from the auditor before he was called on subpoena, they were not obliged to accept the views that he expressed, where their accounting expert plainly took a different view, It also does not seem to me that their not having obtained such a witness statement from the auditor, in the circumstances to which they refer in submissions, amounted to unreasonable conduct on their part. 24I should add that, in oral submissions, the Defendants advanced a further criticism of the Plaintiffs' approach in discussions between the parties that apparently occurred before the matter was restored before the Court to determine the question of valuation. Mr Gray objected to reliance upon that matter which had not been raised in the written submissions. It seems to me that the Plaintiffs would be disadvantaged by reliance on that matter because they would be deprived of the opportunity to lead any evidence which could properly have been led to respond to the Defendants' criticisms of their approach in such discussions. I have not had regard to that criticism. 25In summary, the Court of Appeal plainly treated the principle to which it referred as a starting point and reserved the question of costs of the valuation process to the trial judge determining that matter. The costs of the valuation process seemed to me to be a discrete and separate phase of the hearing, as to which the Court has a discretion, to be exercised judicially, as to how those costs are ordered. Relevant factors include, on the one hand, as the Court of Appeal recognised, that the Plaintiffs succeeded in their oppression claim and that the valuation of the shares was an incident of that claim. On the other hand, the Plaintiffs were unsuccessfully in substantially all the issues in dispute in the valuation hearing. The approach which the Plaintiffs adopted had at least one obvious and fundamental difficulty, to which I referred in paragraph [81] of my primary judgment, namely that it would have valued GMEC's business as having a negative value of $1.23 million on 30 June 2009 and a positive value of $12.52 million on 30 June 2010, attributable largely or entirely to a change of the accounting treatment of commission income that had occurred in the interim rather than any change in the fundamentals of the business. It seems to me that it should have been apparent to the Plaintiffs and their advisers that the value of GMEC's business was not likely to have changed from a negative value on 30 June 2009 to $12.52 million on 30 June 2010, merely because GMEC's accounting policies in respect of the treatment of commission income had changed. It is no answer to that difficulty to contend, as Mr Gray does, that the Plaintiffs were entitled to assume that the change in accounting policy fairly represented GMEC's financial position, where GMEC's accounts comprised a profit and loss statement recording costs incurred in deriving commission outcome, to which the Plaintiffs had no regard, as well as its balance sheet on which the Plaintiffs relied without any relevant adjustment. It seems to me that the Plaintiffs and their advisers ought to have recognised that this obvious and fundamental difficulty suggested that an approach adopted purely by reference to GMEC's balance sheet did not provide a sensible basis for its valuation. 26It does not seem to me to be appropriate, in these circumstances, to order that the Defendants should pay the Plaintiffs' costs, including legal and expert costs, of their propounding a valuation methodology as to which they were unsuccessful in all substantive aspects, and which had at least the obvious and fundamental difficulty to which I have referred above. On the other hand, it also does not seem to me to be appropriate that the Plaintiffs should pay the Defendants' costs of the valuation process where it was required as an incident of an oppression claim on which the Plaintiffs succeeded. In these circumstances, it seems to me that the proper order is that there should be no order as to the costs of this aspect of the proceedings, being those costs incurred on and after the delivery of the Court of Appeal's judgment and of and incidental to the hearing before me. 27Accordingly I make the following orders: