Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd

Background 5 By originating process filed on 14 October 2021, the plaintiff, Bridging Capital Holdings Pty Ltd (BCH), applied for interlocutory orders pursuant to s 472(2) of the Corporations Act 2001 (Cth) that provisional liquidators be appointed to the third defendant, Exelsuper Pty Ltd, or, alternatively, orders pursuant to s 233(1) of the Corporations Act or s 57(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for the appointment of receivers and managers to Exelsuper and ancillary relief. 6 BCH also applied for final orders that Exelsuper be wound up pursuant to ss 461(1)(k) or 233(1)(a) of the Corporations Act, or alternatively orders that the first and/or second defendant (SDSF and Whisbee Nominees Pty Ltd respectively) purchase BCH's interest in Exelsuper at a value to be determined by the Court. The latter order to purchase shares was prayer 15. 7 The plaintiff's case was that the relationship between the shareholders of Exelsuper (being itself, SDSF and Whisbee) had broken down, thus immobilising the company, and that it was facing oppression as a minority shareholder. 8 By letter dated 19 October 2021, solicitors for Whisbee informed the solicitors for the plaintiff that Whisbee neither consented to nor opposed the interlocutory orders sought by the plaintiff, although it reserved its right to "make amicus curiae submissions". That appears to be on the basis that none of those orders sought relief against Whisbee, although Whisbee's interests were affected inasmuch as Whisbee was a minority shareholder of Exelsuper. 9 On 20 October 2021, programming orders were made preparing the matter for interlocutory hearing on 8 November 2021. 10 By letter dated 29 October 2021, the plaintiff sought the consent of the other parties to file an amended originating process by which it sought to join Exelsuper Advice Pty Ltd and Mr Christopher Harris as the fourth and fifth defendants and seek the same relief against them as against Exelsuper and SDSF respectively. Relevantly, that relief included, as one of the alternatives of final relief, an order that Harris purchase, at a value to be determined by the Court, the plaintiff's shares in Exelsuper Advice. Exelsuper and Exelsuper Advice are related companies. 11 On 4 November 2021, SDSF filed written submissions for the interlocutory hearing in which it indicated that it was prepared to purchase BCH's shares in Exelsuper at their market value. That is to say, SDSF indicated its willingness to agree to final relief in the form of prayer 15 sought by the plaintiff in its originating process. 12 By letter dated 5 November 2021, solicitors for SDSF made a settlement offer to the plaintiff. In essence, the proposed settlement envisaged the purchase by SDSF of the plaintiff's shares in Exelsuper and Exelsuper Advice at prices to be determined by an independent valuer jointly instructed by SDSF and the plaintiff. The offer also provided for the plaintiff to pay costs as follows: 9.1. [SDSF's] costs on a party/party basis to be agreed if not taxed if the valuation referred to in paragraph 5 above values the Plaintiff's shares in Exelsuper Pty Ltd and Exelsuper Advice Pty Ltd to be $800,000 or less. 9.2. 50% of [SDSF's] legal costs if the valuation referred to in paragraph 5 above values the Plaintiff's shares in Exelsuper Pty Ltd and Exelsuper Advice Pty Ltd to be greater than $801,000. 9.3. In any event, the costs paid by [SDSF] to Forte in relation to the sale of shares in Exelsuper Pty Ltd and Exelsuper Advice Pty Ltd to the Plaintiff. 13 On 8 November 2021, the interlocutory hearing was vacated by consent. Orders were also made by consent joining Exelsuper Advice and Mr Harris as the fourth and fifth defendants and granting leave to the plaintiff to file the amended originating process. There was a notation to the orders that upon the filing of the amended originating process, SDSF and Mr Harris would consent to final relief in the form of prayers 15(a) and 15(b), being the purchase of the plaintiff's shares in Exelsuper and Exelsuper Advice at market value, and that the parties would confer regarding appropriate orders to implement that relief. 14 The parties duly conferred and, on 22 November 2021, orders were made by consent providing for the contemplated purchase of the plaintiff's shares and for the question of market value to be referred to Mr James Navarra who was appointed as an independent referee. 15 On 20 December 2021, there was a hearing following which Mr Navarra's report was adopted by consent and consequential orders were made the following day providing for: (1) SDSF to purchase the plaintiff's shares in Exelsuper for the sum of $236,173; and (2) Mr Harris to purchase the plaintiff's shares in Exelsuper Advice in the sum of $46,066. (See Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd [2021] FCA 1625; 396 ALR 415.)

The applicable principles 16 The general principles that apply to the determination of costs where there has been no adjudication on the merits of the proceeding are well-established. There is no dispute about the plaintiff's characterisation of those principles as follows: (1) the court has no ability to try a hypothetical action between the parties; (2) however, in an appropriate case, the court may make an order for costs where there has been no adjudication on the merits and the moving party no longer seeks to proceed with the action; (3) examples of circumstances in which the court may be satisfied it is appropriate to make such an order include where the court is able to conclude that: (a) one of the parties has acted so unreasonably as to justify a court order against it; or (b) despite both parties having acted reasonably, one party would almost certainly have succeeded if the matter had been tried; (4) it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement removes or modifies the subject of the dispute such that no issue remains between the parties except as to costs although no party can be said to have won. In the former type of case, the exercise of the court's discretion will usually justify the award of costs to the successful party; and (5) where it appears to the court that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the discretion will usually mean the court will make no order as to costs. (See Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625 per McHugh J; One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at [5]-[6] per Burchett J; Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84; 97 NSWLR 681 at [27]-[30] per Payne JA, Meagher JJA agreeing.)

The costs as between the plaintiff and SDSF and Mr Harris 17 Although the plaintiff makes no costs claim against Mr Harris, Mr Harris claims his costs against the plaintiff. As Mr Harris consented to the joinder of him and Exelsuper Advice, and they both immediately consented to orders that Mr Harris purchase the plaintiff's shares in Exelsuper Advice, it would appear that the dispute about those shares had been resolved prior to the joinder. In those circumstances, there appears to be no justification for any costs order in respect of Mr Harris. 18 The plaintiff seeks its costs against SDSF on the basis that SDSF capitulated to one of the forms of final relief sought in the originating process on the eve of the interlocutory hearing, being prayer 15, which had the result that interlocutory relief was no longer required and the interlocutory hearing was vacated. 19 SDSF resists that course and seeks its costs against the plaintiff on the basis that prior to the proceeding having been commenced, by letter dated 27 September 2021, it offered to settle the dispute on a basis that turned out to be more favourable to the plaintiff than what was ultimately realised. The settlement offer relevantly included the following: (1) It was marked "without prejudice save as to costs". (2) Mr Harris offered to pay $800,000 to resolve all disputes between Mr Moses, being the principal party behind the plaintiff, and Mr Harris, being the principal party behind SDSF and a director of Exelsuper. (3) The amount of $800,000 would be paid in instalments: $500,000 being paid within 7 days and then $100,000 at the end of September of each of the succeeding three years. (4) The plaintiff would transfer its shareholding on receipt of the first instalment. 20 Although the plaintiff ultimately achieved a price of only approximately $282,000 for its shares (see [15] above), the offer and what was ultimately achieved are not readily comparable. That is because the plaintiff paid some $2.28 million for its shares approximately three months prior to receipt of the offer, and says that it has claims for misleading and deceptive conduct which caused it to pay that sum for shares which a short while later were valued at little more than one tenth of that amount. The offer was made on the basis of the settlement of all issues or disputes with the usual mutual releases, which would have had the result that the plaintiff could not pursue its misleading and deceptive conduct claim. Also, had it accepted the offer it would have had to transfer its shares on receipt of only the first instalment. 21 In the circumstances, I do not consider that the settlement offer justifies a costs order against the plaintiff. 22 SDSF also relies on the following factors. First, it says that the plaintiff's assertion of oppression was contested and never established. Secondly, it says that its offer to purchase the shares (in or arising from its written submissions of 4 November 2021) was a compromise accompanied by a denial of oppression. Thirdly, it says that the price paid to buy back the shares was substantially less than what had been paid for them initially. 23 None of those matters is particularly pertinent. The case was settled, so of course oppression was denied and not established. If the case had not settled, it may or may not have been established. That is the point. It is hard to see how the offer to purchase was a compromise when it was in reality acceptance of a key element of the final relief that was sought. The fact that the valuation ultimately arrived at by the referee was considerably less than what had been paid is neither here nor there for present purposes. It may, however, be highly relevant in the signalled misleading and deceptive conduct claim. 24 Finally, SDSF points to the proposal it made with regard to costs on 5 November 2021 which is quoted at [12] above. 25 I am not in a position to conclude that either side acted unreasonably, which would in the ordinary course, in accordance with the principles identified above, have the result that each party should bear its own costs. However, the reality is that one alternative of the final relief that was sought was that SDSF would purchase the plaintiff's shares in Exelsuper at a value to be determined by the Court, and well into the proceeding SDSF agreed to that relief. That is a form of capitulation. 26 Thereafter, the parties still had to implement the agreement including by appointing the referee and seeking the adoption of the referee's report. Those are costs that would have had to have been incurred regardless of when prayer 15 was accepted. 27 In the circumstances, in my view the just and equitable costs order as between the plaintiff and SDSF is that SDSF pay the plaintiff's costs of the proceeding up to and including 5 November 2021, and that thereafter the parties bear their own costs.

The costs as between the plaintiff and Whisbee 28 As mentioned, the plaintiff does not seek any costs against Whisbee. Whisbee is a minority (7%) shareholder in Exelsuper. One of the possibilities of final relief sought against Whisbee was that it be ordered to purchase the plaintiff's shares in SDSF. No interlocutory relief was sought against it. 29 Also as mentioned, Whisbee seeks party and party costs up to 30 November 2021 and indemnity costs thereafter, each on a lump-sum basis. 30 Whisbee complains that the amended originating process that was filed on 8 November 2021 maintained a claim for final relief against it even though by then there was an agreement between the plaintiff and SDSF that the latter would purchase the plaintiff's shares in Exelsuper. It says that that position is unexplained and that it had the result that even after that date, Whisbee continued to have a substantive interest in the proceeding. 31 That strikes me as a curious position to take. In circumstances where the agreement between the plaintiff and SDSF with regard to the purchase of the plaintiff's shares was noted on the orders on 8 November 2021, it must have been obvious to Whisbee that the matter was over insofar as it was concerned. 32 The significance of 30 November 2021 in the costs orders that Whisbee seeks is that on 29 November 2021 it made an offer to the plaintiff to resolve the question of costs. It offered to accept payment of its attorney and own client costs discounted by 15%, which it said was its party and party costs, amounting to $11,196.13. It then rounded that down to $10,000. The following day, the plaintiff rejected that offer and also indicated that it intended to seek an order against SDSF and Mr Harris that one or both of them pay the costs of the proceeding (seemingly meaning also Whisbee's costs). The plaintiff offered to keep Whisbee advised of when costs would be agitated before the Court so that it could participate if it chose to. 33 Whisbee submits that the plaintiff unreasonably rejected its offer such that the plaintiff should pay costs on an indemnity basis thereafter. 34 There was no determination of the plaintiff's claim against Whisbee, although it is clear that that claim was always a secondary claim against the possibility that rather than ordering SDSF to purchase all the plaintiff's shares in Exelsuper, the Court might order Whisbee to purchase some or all of them. However, from 8 November 2021, the claim against Whisbee had obviously been overtaken by the settlement between the plaintiff and SDSF. There was no justification for Whisbee to incur costs in the proceeding thereafter, save for limited costs in writing letters trying to resolve the question of costs. 35 In the circumstances, the proper order for costs is that the plaintiff pay Whisbee's party and party costs up until and including 8 November 2021, and that Whisbee bear its own costs thereafter. 36 Whisbee has sought to quantify its costs on a lump-sum basis up to 30 November 2021. On the evidence it has submitted, it is not possible to quantify those costs to 8 November 2021. In any event, in view of the plaintiff's contention that some of Whisbee's costs are unjustified in view of it having no interest in the interlocutory relief, which was the principal question at stake up until 8 November 2021, the most appropriate order is that the costs be on a "as taxed or agreed" basis.

Disposition 37 In the result, there should be orders that: (1) The first defendant pay the plaintiff's costs on a party and party basis, as taxed or agreed, up to and including 5 November 2021; and (2) The plaintiff pay the second defendant's costs on a party and party basis, as taxed or agreed, up to and including 8 November 2021. 38 There has been mixed success on the costs applications, with the result that no order should be made in relation to them. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

SCHEDULE OF PARTIES NSD 1065 of 2021 Defendants Fourth Defendant: EXELSUPER ADVICE PTY LTD Fifth Defendant: CHRISTOPHER STEVEN HARRIS