Demetriou v Gusdote Pty Limited

Demetriou v Gusdote Pty Limited - [2010] FCA 581 - FCA 2010 case summary — Zoe

[19]

The Facts 2 The relevant facts are set out below. They are contained in the affidavits of Emilios Demetriou sworn 25 January 2010, Janette Linda Ashley sworn 22 January 2010 and Stephen Brian Swaine sworn on 11 February 2010. 3 Prior to 2003 Gusdote was the registered proprietor of land located at Townsville. Such land was primarily used for the purpose of a golf course, known as 'Willows Golf Course' with the remainder being a portion of land which was undeveloped ('the 5.02 hectares'). 4 Prior to August 2003, the sole Director of Gusdote was Mr Matheson. The sole shareholder of Gusdote was the sixth respondent, namely Susan Rose Matheson ('Mrs Matheson') to whom one share was allocated. 5 A meeting took place in Townsville on 29 August 2003 at the offices of Mr Jeffrey Dickens ('Mr Dickens'), the solicitor of Mr Matheson. It was attended by the first applicant ('Mr Demetriou'), the second applicant ('Mrs Ashley'), her husband the late Robert Ashley ('Mr Ashley'), Mr Matheson, Mr Dickens and Mr Stephen Swaine, accountant to Mr Demetriou. At such meeting an agreement was concluded by Messrs Ashley and Demetriou with Mr Matheson ('the initial agreement'). The initial agreement was intended to provide Gusdote with sufficient capital to subdivide and develop the 5.02 hectares of land. 6 Pursuant to the initial agreement, Mr Demetriou and Mr Ashley were to pay an amount of $250,000 each to Gusdote by way of loan. In addition, they were to guarantee an outstanding debt of Gusdote to the National Australia Bank ('the NAB') of approximately $960,000. 7 In consideration of such payments and guarantee, Mr Matheson was to arrange for the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote. Further, Mr Matheson was to arrange for the share capital of Gusdote to be increased by the issue of one share each to Mrs Demetriou, Mrs Ashley and Mrs Matheson. By virtue of this share allocation Mrs Ashley and Mrs Demetriou would each hold 25% of the issued capital of Gusdote with Mrs Matheson holding the remaining 50%. 8 It was also a term of the initial agreement that Mr Matheson would attend to the lodgement of all documentation with the Australian Securities and Investments Commission ('ASIC') necessary to record the change in directors, the increase in the share capital of Gusdote and the allocation of shares to Mrs Ashley, Mrs Demetriou and Mrs Matheson. The initial agreement was not recorded in writing. 9 Pursuant to this agreement, on 29 August 2003 Messrs Ashley and Demetriou each signed consents to act as directors of Gusdote. Further Messrs Ashley and Demetriou each paid the amount of $250,000 to Gusdote and on 1 September 2003 Messrs Ashley and Demetriou signed the guarantee to the NAB in respect of Gusdote's debt. Accordingly, Messrs Ashley and Demetriou fulfilled their part of the initial agreement. 10 Despite the signing by Messrs Ashley and Demtriou of their consents to act as directors, no documents were ever lodged by Mr Matheson with ASIC recording their appointment as directors of Gusdote. As a consequence, neither Mr Demetriou nor the late Mr Ashley have ever been recorded as directors of the company. 11 On 29 August 2003 Mr Matheson caused Gusdote under its common seal to issue share certificates to Mrs Ashley and Mrs Demetriou, signed by Mr Matheson. However, ASIC was never notified by Mr Matheson of the increased shareholding. 12 In or about April 2004 another agreement was made in Townsville between Messrs Ashley, Demetriou and Matheson ('the Madeas agreement'). Pursuant to the Madeas agreement, a new company was to be formed known as Madeas Pty Limited ('Madeas'), the purpose of which was to develop the 5.02 hectares of undeveloped land owned by Gusdote. Under the terms of this agreement, the shareholding of Madeas was to be allocated as to 50% to third parties who were acting as trustees for the Matheson interests and the remaining shares were to be held as to 25% by Mrs Ashley and 25% by Mrs Demetriou. Further, Messrs Matheson, Demetriou and Ashley were to be appointed as directors of Madeas. Simultaneously a trust known as the Willows Unit Trust was to be established which created an interest of one third each for Mrs Ashley, Mrs Demetriou and the trustees of the Matheson interests. 13 Madeas was duly incorporated, Messrs Ashley, Demetriou and Matheson were appointed directors and all shares were issued as proposed by the Madeas agreement. 14 After the meeting which gave rise to the Madeas agreement, no meetings either of Gusdote or of Madeas were attended by Mr Ashley or Mr Demetriou. The 5.02 hectares of the undeveloped land owned by Gusdote was transferred by Gusdote to Madeas. The land was subdivided and all lots were sold. As a result a recorded profit of $387,000 nett became payable to each of the shareholders in Madeas in 2006. In fact, no payment representing such shareholder profit has ever been received by either Mrs Ashley or by Mrs Demetriou. 15 A further agreement ('the further agreement') was entered into by Messrs Ashley and Demetriou with Mr Matheson by telephone in or around May 2004. The actual sequence of the Madeas agreement and the further agreement was not established at the hearing. Nevertheless, it is common ground that pursuant to this agreement both Mr Ashley and Mr Demetriou agreed to invest an additional $75,000 each in Gusdote. In consideration for such payment Mrs Demetriou's and Mrs Ashley's shareholding in Gusdote was to be increased from 25% to a one third share each. 16 Mr Demetriou and Mr Ashley duly paid $75,000 as provided by the further agreement. Mr Matheson however again neglected to notify ASIC of such variation in the shareholding of Gusdote. 17 Mr Ashley died on 23 December 2005 and Mrs Ashley duly became the legal personal representative of the late Mr Ashley's estate. 18 On 17 May 2007 Gusdote executed a transfer of its remaining land ('the golf course land') to NQLD. Neither Mr Demetriou nor Mr Ashley (or his representative) had been consulted in respect of such transfer. The transfer was signed by Mr Matheson on behalf of Gusdote. The mortgage to the NAB over the land had by that time been discharged on a date not disclosed by the evidence and accordingly Gusdote was able to provide an unencumbered title to NQLD as the purchaser. 19 The sale of the golf course land was expressed to be for a consideration of $3,000,000, of which $200,000 was stated to have been paid in cash while the balance of the purchase price ($2,800,000) was identified in the memorandum of transfer as 'Assumption of Liabilities'. The 'Assumption of Liabilities' consisted of a mortgage given by NQLD to Gusdote over the golf course land. Such mortgage provided for repayment of the principal sum to Gusdote on 17 May 2009. During the term of the mortgage an interest rate of 8% per annum was to be paid calendar monthly on the first day of each preceding calendar month during the continuance of the mortgage. 20 The sole director of NQLD was Mr Matheson. Mr and Mrs Matheson held (and continue to hold) a 50% interest each in NQLD. 21 Neither Mr Ashley during his lifetime nor Mrs Ashley, nor Mr and Mrs Demetriou had any knowledge of the transfer of the golf course land by Gusdote to NQLD. There has been no account to the applicants of any monies received from the operation of the golf course which was managed initially by Mr Matheson then apparently sub-let under some form of licence agreement. Nor has there been any accounting relating to the repayment of the principal secured nor of the interest payable to Gusdote in respect of the $2,800,000 secured by the mortgage granted by NQLD over the golf course land. Neither has there been any account to the applicants of the $200,000 which was paid to Gusdote by NQLD at the date of the transfer of the land from Gusdote to NQLD. 22 On 1 April 2010 NQLD was placed in administration. Ian David Jessup and Moira Kathleen Carter were appointed voluntary administrators on that date. On 7 April 2010 the applicants sent an email to the administrators enquiring as to the position that the administrators would take in these proceedings. Correspondence received from Ms Carter dated 13 April 2010 established that the administrators held no funds and would not be in a position to pay for any legal advice or representation for NQLD in these proceedings. 23 On 11 May 2010 the applicants filed a Notice of Motion seeking leave to proceed against NQLD. By order of the Court made on 17 May 2010, leave was granted pursuant to s 440D(1) of the Corporations Act 2001 (Cth) ('the Corporations Act') for the applicants to proceed against NQLD.

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The Hearing 24 Present at the hearing on 24 May 2010 were counsel for the applicants and counsel for the first, second, fourth, fifth, and sixth respondents ('the respondents'). Following the opening submissions by counsel for the applicants, the affidavits relied upon by the applicants were read and several exhibits were tendered. Such affidavits established the facts stated above. The Court then took a short adjournment at 11:47 am, during which the parties had discussions concerning the future conduct of the proceedings. As a result of those discussions counsel for the respondents announced at the resumption of the hearing that the relief sought insofar as it affected his clients would not be opposed, other than the issue of costs. To enable the parties to formulate the final relief claimed and consented to, the Court adjourned the hearing at 12:39 pm to resume at 10.15 am on the following day, namely Tuesday 25 May 2010. 25 At 2.18 pm on 24 May 2010 a communication was received by the Court from Mr Tim Dobinson, solicitor of Preston Law located in Cairns Queensland. Mr Dobinson informed Court staff that he had received instructions from NQLD to appear at the hearing. 26 When the proceedings resumed at 10.15 am on 25 May 2010, NQLD appeared by Mr Dobinson via telephone. Following the announcement of his appearance, Mr Dobinson was informed by the Court of the stage to which the proceedings had progressed. Initially Mr Dobinson requested a 14 day adjournment to enable his client to make written submissions. Mr Dobinson was unaware that his client, by its administrators, had already provided notification to the applicants that NQLD had no funds and would not be appearing before the Court. 27 The proposed adjournment was opposed by the applicants who referred the Court to the principles stated by the High Court of Australia in AON Risk Services Australia Limited v Australian National University (2009) 239 CLR 175. The Court declined the application for a 14 day adjournment. However the proceedings were adjourned at 10:35 am on 25 May 2010 to enable Mr Dobinson to obtain instructions, confer with opposing counsel and formulate any submissions which his client sought to make at the hearing. 28 Upon resumption at 12:04 pm on the same day, the Court was informed by Mr Dobinson that having had discussions with the legal advisors for the remaining parties, his client did not oppose the grant of the relief claimed which affected his client (namely Declaration 10 and Order 3 as set out in the Court's orders). Mr Dobinson informed the Court however that as his client had no knowledge of the facts and circumstances of the matter it was not in a position to consent to the grant of such relief. 29 The Court notes that no suggestion was made by Mr Dobinson that any creditor of NQLD might be prejudiced by the granting of the relief sought by the applicants against NQLD.

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Applicants' submissions on Costs 47 Subject to the above concession, the applicants seek an order that Mr Matheson pay the applicants their costs of these proceedings from and including 8 December 2009 until 25 May 2010 on an indemnity basis. On 8 December 2009 the Amended Application and Statement of Claim were provided to the respondents and on 30 March 2010 the respondents filed defences raising issues which were all abandoned on the first day of the hearing. 48 The applicants submit that such defences were maintained by the respondents until the hearing had commenced, as is evidenced by the 'Response of the 1st, 2nd, 4th, 5th and 6th Respondents to the Applicant's statement of Issues' ('the Response') filed 19 May 2010. The Response added an additional seven issues for determination to the list already identified by the applicants. The applicants submit that the respondents clearly conducted themselves as if the trial were to be contested on numerous issues, yet by their conduct on the first day of the hearing they must be taken to have acknowledged that there was never any valid defence available to them. 49 The applicants seek an order for an award of indemnity costs against Mr Matheson. As to the remaining respondents, the applicants submit that Mrs Matheson had no relevant role in the proceedings other than being affected by the orders of the Court. The applicants further submit that Gusdote and Madeas are corporations in respect of which Mrs Ashley and Mrs Demetriou have an interest. Accordingly if those companies were ordered to pay costs, Mrs Ashley and Mrs Demetriou would be prejudiced since, as majority shareholders, any such costs order would operate to their detriment in proceedings in which they were successful. 50 The applicants submit that the conduct giving rise to this claim was solely that of Mr Matheson. The applicants also submit that it was Mr Matheson who made the relevant agreements and who failed to fulfil the agreements by having Gusdote's corporate records amended. Further it was Mr Matheson who arranged for the transfer of Gusdote's land to NQLD making it necessary for NQLD to be joined as a party. 51 The applicants submit that insofar as Don Matheson Golf Course Construction Pty Limited is involved, it played no role and apparently has incurred no expense. Had a request been made to discontinue the proceedings against that company, the applicants submit that they would have consented to such order.

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61 Costs are not awarded to punish a party but rather to compensate another party: see Oshlack v Richmond River Council (1998) 193 CLR 72 per Brennan CJ at [1]; Latoudis v Casey (1990) 170 CLR 534 at 567 (per McHugh J). 62 Whilst the claim has been made by the respondents that Mr Matheson was acting as agent for Gusdote, the Court is satisfied that the corporate mind of Gusdote was solely that of Mr Matheson. It was Mr Matheson who entered the agreement and who bore the responsibility for ensuring that the register of directors and shareholders was accurate. Further, the agreement made between the late Mr Ashley and Mr Demetriou was with Mr Matheson, although it did impact upon the structure and operation of Gusdote. For these reasons the Court is satisfied that Mr Matheson alone is the party against whom the question of costs is to be considered. 63 The next issue is whether it can be said that the conduct of Mr Matheson falls in that category of conduct which merits an order for indemnity costs, namely whether the conduct of Mr Matheson personally has resulted in costs being incurred without any sound reason. Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) the Court has been invested with the jurisdiction to make any order for costs which, in its discretion, it considers appropriate. Such jurisdiction however is to be exercised judicially: see Oshlack per McHugh J at [65]. 64 Whilst the Court is required to consider the conduct of the litigation rather than the events which gave rise to the litigation when assessing costs considerations, it is necessary to have regard to the manner in which the proceedings have been conducted and whether certain issues within the underlying facts justify the conduct of either party. In doing so the Court is unable to see any justification for the defences raised by the respondents who appeared. The Court is satisfied that the raising of defences without merit and maintaining such defences until the first day of the hearing before abandoning them justifies the making of an indemnity costs order. However, as has already been referred to, the defences were not raised until 30 March 2010. The Court is satisfied that the indemnity costs order should operate from that date until 25 May 2010 and that otherwise Mr Matheson should bear party/party costs of the applicants from the inception of the proceedings until 30 March 2010 other than the costs thrown away by virtue of the amendments to the pleadings by the applicants. 65 As regards the costs of the second respondent (Madeas), no relief will be ordered against that company. There is no suggestion that any separate costs were incurred by that company, the shareholding of which is shared by both the interests of the applicants and of Mr and Mrs Matheson. Madeas took no active part in the proceedings. There is no evidence of any meeting of any directors authorising any active defence. In these circumstances the Court makes no order in relation to the costs of Madeas. 66 As to the fourth respondent, Don Matheson Golf Course Construction Pty Limited, there is no evidence that the company has taken any active role in the proceedings. The Court makes no order in respect of the costs in that company. 67 With regard to the sixth respondent, Mrs Matheson, she has taken no active part in the proceedings. Since declarations were sought involving her shareholding in Gusdote she had been properly joined as a party. The Court makes no orders in respect of the costs of the sixth respondent. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

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