Corbett v Corbett Court Pty Limited, in the matter of Corbett Court Pty Limited

AND: CORBETT COURT PTY LIMITED (ACN 062 978 545)

JUDGE: FARRELL J DATE: 23 November 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 4 November 2015, I delivered the substantive judgment in favour of the plaintiff, reserved the issue of costs and invited the parties to provide written submissions as to costs: see Corbett v Corbett Court Pty Limited, in the matter of Corbett Court Pty Limited [2015] FCA 1176 ("Corbett v Corbett Court"). Terms defined in Corbett v Corbett Court bear the same meaning in this judgment. 2 At [208] of Corbett v Corbett Court, I indicated my preliminary view that, subject to the parties' submissions, John and Renelle should pay Paul's costs as agreed or taxed and John and Renelle should pay any costs incurred by Corbett Court in the proceedings on an indemnity basis.

Should indemnity costs be ordered? 3 Paul submits that the defendants (Corbett Court, John and Renelle) should be ordered to pay his costs on an indemnity basis from 11 am on the date two business days after 7 June 2013 pursuant to r 25.14(3) of the Federal Court Rules 2011 (Cth). This is because on 7 June 2013, Paul made two offers of compromise: (1) that the defendants consent to judgment being entered in Paul's favour in the sum of $300,000; or (2) that the defendants consent to orders (in effect) rectifying Corbett Court's share register to reverse the Share Issue of 100,000 shares made to John and Renelle in May/June 2012 and that the defendants be restrained from doing an act the purpose or effect of which is to dilute Paul's proportionate share holding pursuant to articles 37 and 38 of Corbett Court's constitution or otherwise without Paul's prior written consent or by order of the Court, plus costs as agreed or taxed. 4 On 4 November 2011, I made orders that the Share Issue be set aside but I did not make an order in the nature of an injunction restraining further issues of shares in Corbett Court nor did I make an order that any sum of money be paid to Paul. 5 Paul contends that the effect of the judgment in Corbett v Corbett Court is the same as if an order restraining the defendants in the form of that proposed in the 7 June 2013 offer had been made on the basis that a further share issue of the type made in 2012 would be oppressive and it would be open to any affected person to make a further application in relation to any such issue. I do not accept Paul's submission. At [147] of Corbett v Corbett Court, I found that an Understanding of the kind pleaded by Paul did not exist; that is, Paul failed to establish that there was an Understanding that shareholders of Corbett Court would hold their shares in the proportions which existed before the Share Issue come what may. It is open to the directors of Corbett Court to offer shares for subscription in accordance with Corbett Court's constitution provided the offer is made for a proper purpose, even if some of the shareholders do not accept an offer and their shareholding is thereby diluted. 6 The judgment obtained by Paul on 4 November 2015 is not more favourable than the terms of the offers made on 7 June 2013 and r 25.14(3) is not satisfied so that no presumption in favour of an award of indemnity costs arises. 7 Paul submits that this is an appropriate case for the exercise of the discretion conferred on the Court under r 1.35 by making an indemnity costs order on the basis that the defendants are in no better position than they would have been in had they accepted one of the offers made on 7 June 2013 and expense incurred by Paul would have been avoided had they done so. Paul further contends that the 7 June 2013 offers should be considered on the same basis as a Calderbank offer (Calderbank v Calderbank [1975] 3 All ER 333). Paul submits that it is open to the Court to treat an offer of compromise as a Calderbank offer, relying on APF Properties Pty Ltd v Kestrel Holdings Pty Ltd (No 3) [2007] FCA 2016 at [18] per Heerey J. 8 Under s 43 of the Federal Court of Australia Act 1976 (Cth), the Court's power to award costs encompasses power to award costs on an indemnity basis. The discretion must be exercised judicially. However, this does not mean, and it is wrong to think, that the law requires that the discretion be exercised in a certain way in a particular case because of the presence or absence of factors which may have been persuasive in an earlier case. How the discretion is to be exercised in a particular case depends on all the relevant circumstances of that case: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 238 per Lindgren J. 9 Paul says the offers were genuine and it was unreasonable for the defendants not to accept them at the time in light of the factual findings in Corbett v Corbett Court in relation to the purpose of the Share Issue. 10 Although Paul has been successful in persuading the Court that the Share Issue was made for an improper purpose and was oppressive within the meaning of s 232(e) of the Corporations Act 2001 (Cth) and early settlement of disputes is to be encouraged, I am not satisfied that the defendants were so unreasonable in rejecting the offers of compromise when they were made to justify an award of indemnity costs. 11 I specifically reject the defendants' contention that there is any relevance to the fact that the remedy ordered by the Court was not that which Paul "principally claimed" as a basis for denying Paul an indemnity costs award. That the Share Issue should be set aside was a claim made by Paul in the originating process and in one of the two offers made on 7 June 2013. It was also a claim made in Paul's opening and closing submissions as a remedy available in combination with or as an alternative to an order that John and Renelle purchase his shares at their fair market value (in their original proportion) if oppression was found. 12 Nonetheless, at the time the offers were made Paul had not yet filed evidence and Paul's case was significantly disclosed in the evidence filed, not in the sparsely pleaded statement of claim. No offers were made after 7 June 2013 when the nature of the case was better disclosed. The 7 June 2013 offers appeared to contain no real element of compromise and Paul has not done better than his offers. I will not make a costs order on an indemnity basis.

Conduct of the litigation 13 The defendants claim that Paul should be entitled to only 50% of costs on the ordinary basis because he was not successful in relation to a number of issues advanced in the conduct of the case including: (1) The existence of the Understanding as a legitimate expectation as to how Corbett Court would operate; (2) The Share Issue was contrary to Corbett Court's constitution by reason of failure to comply with articles 38 and 95; (3) Corbett Court was not in need of finance; (4) Corbett Court had available alternate sources of financing; and (5) Much of Paul's evidence concerning impropriety and dishonesty of John and Renelle was not accepted. 14 The defendants rely on the judgment of Young J (as he then was) in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 23-24 and the judgment of the Full Court of this Court in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 to the effect that although the principle governing the award of costs is generally that costs follow the event, where there are multiple issues it may be appropriate for the Court to assess the costs on each issue or make a reduction in the costs which the successful party obtains because of that party's losses on separate issues. In this context, "issue" does not mean a precise issue in the technical pleading sense; it is to be interpreted broadly as "any disputed question of fact or of law": Hughes v Western Australian Cricket Association Inc (1986) ATPR ¶40-748 at 48,136. As pointed out in Hughes, while there is no difficulty in stating the principles, their application to the facts of a particular case is not always easy. 15 Courts are often reticent to adopt this approach too readily: as has been observed by the Western Australian Court of Appeal, to embark as a general practice on an analysis of which party was successful on each issue is likely to add further cost, uncertainty and complexity to the outcome of litigation and derogate from the prospect of settlement. Justice may not be served by too ready resort to deciding questions of costs according to success on particular issues so that parties are dissuaded by the risks of costs from canvassing issues which might be material to the decision in the case: Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) at [6]-[7]. 16 Paul submits that it would be inappropriate to treat the Understanding as an "issue" because it was subsidiary to the main issue of whether the Share Issue was for a proper purpose and it could not have been advanced as a stand-alone issue. I do not accept this characterisation. The argument concerning the "Understanding" was run on the basis that the Share Issue breached the legitimate expectations of the siblings and was therefore oppressive as an "additional issue" to the "central" issue of whether the Share Issue was made for a proper purpose. There was a question of fact as to whether the Understanding existed or persisted after the death of Keith and Valerie. It was the subject of evidence by Paul, Gwen, Joe and Clare and it was addressed in submissions by both parties. 17 The invalidity of the Share Issue as a consequence of an alleged breach of articles 38 and 95 of Corbett Court's constitution was pleaded as a separate issue; it was only in Paul's outline of submissions filed shortly before the commencement of the hearing that he indicated that he would not rely on it as a separate ground but rather in support of the oppression claim. Although it was addressed in submissions, this issue did not take up significant time or effort of the parties. 18 The issues set out at (3)-(5) of [13] went to Paul's prime contention that John and Renelle exercised the power to issue shares for an improper purpose. In pursuing those issues, the basis for the siblings' lack of trust of John emerged in documentary evidence and from the evidence-in-chief and cross-examination of Paul, Joe and Clare. Although I found that John did not act from dishonest intent, I did find a basis for the siblings' distrust of John's representations that Corbett Court required funding to establish Target as a tenant to ensure Corbett Court's continued financial viability. Evidence submitted in pursuing issues (3)-(5) was relevant to establishing the siblings' stated need for independent advice in connection with the affairs of Corbett Court including the Share Issue having regard to: (1) the linkage between Corbett Court's affairs and the administration of the parents' estates; (2) John's superior position of intimate knowledge of his parents' estates and the affairs of Corbett Court (including the value of its properties); (3) his appointment of Renelle as a director against a background of refusing to appoint an independent director and disclosure of management fees and loans to related parties in 2010 and subsequently; and (4) John's aggressive pursuit of what he regarded as his entitlements. This evidence was a necessary part of the context of the oppression claim on which Paul was successful, even though Paul was not successful on the question of whether Corbett Court required finance or the available sources of finance or the nature of some of John's conduct. 19 I accept Paul's submission that my findings as to Paul's conduct in his dealings with the National Australia Bank have no bearing on the issue of costs.

Conclusion 20 In exercising the discretion under s 43(2) of the Federal Court Act, I consider that it would be appropriate to take some account of the defendants' success in relation to issues (1) and (2). Although many of the submissions in support of issues (3)-(5) was misplaced, I do not consider that it would be appropriate to displace the operation of the usual rule that costs follow the event in relation to those issues. I will order that John and Renelle pay 95% of Paul's costs as agreed or taxed. 21 None of the parties made any submissions about the foreshadowed order that John and Renelle pay any costs incurred by Corbett Court on an indemnity basis. I will make an order to that effect. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.