GRAMMER AND ORS v BAILEY AND ORS [2011] NSWSC 513 | Case summary

Judgment 1RS HULME J: The ultimate issues posed in these proceedings were what costs orders should be made in connection with proceedings purportedly commenced by Namoi Valley Aquafarming Pty Ltd against Eastern Star Gas Limited in the Mining Warden's Court. It will be convenient to refer to these companies as "Eastern Star" or "ESG" and "NVAF". To a very large degree resolution of the costs issues depends on whether the proceedings, either initially or at any later time, were properly authorised by NVAF. 2Other protagonists who appeared in the proceedings were:- Mr Steven Grammer who was a director of NVAF and who claimed to be NVAF's managing director; Mr Michael McHugh who, or whose employer or company The Law Company Pty Ltd, acted at Mr Grammer's instigation as NVAF's solicitor; and Mr Dean Von Harten and his father Mr Ronald Von Harten who were also directors of NVAF. 3Section 107 of the Petroleum (Onshore) Act 1991 (NSW) provides that the holder of a petroleum title is liable to compensate every person having an interest in any land injuriously affected by reason of actions taken in pursuance of the Act. On 1 December 2008 Mr Steven Grammer wrote to the Mining Warden in Sydney complaining about mining exploration activities conducted by Eastern Star in close proximity to what he referred to as "my hatchery". In the letter Mr Grammer described himself as "Manager/owner" of Namoi Valley Aquafarming Pty Ltd and enclosed a deal of documentation suggesting that the hatchery business conducted by NVAF had been damaged by such activities. 4On 9 December 2008 the Chief Mining Warden's Court wrote to Mr Grammer thanking him for his application for compensation and enclosing a receipt for the application fee of $130 and a Notice of Hearing for 22 January 2009 which Mr Grammer was told needed to be served. The accompanying "Notice of Hearing of Application for Assessment of Compensation" described the Applicant as NVAF, referred to a numbered Petroleum Exploration Licence and the holder of the Licence as Eastern Star Gas. It was accepted before me that these events amounted to the commencement of proceedings in the Narrabri Mining Warden's Court in which NVAF purported to claim against Eastern Star compensation under the Act. The proceedings seem to have been given the number 2008/55.

The Directors' Involvement in the Warden's Court Proceedings 28I turn then to evidence concerning the litigation against Eastern Gas. As has been indicated, the proceedings commenced on or between 1 and 9 December 2008. The first contemporaneous evidence of any difference of view between the directors is a letter of 28 March 2009 from the Van Hartens to Mr McHugh. 29Mr Grammer's account of the events preceding that letter is as follows. He said that on or about 20 August 2008, Dean Von Harten drew his attention to Eastern Star's proposed activities, Mr Grammer became concerned, carried out some research and had discussions with a variety of persons including the Von Hartens, representatives of Eastern Star and others. Minutes of a meeting of 4 September show that there was then a meeting at which representatives of Eastern Star, Mr Grammer and both Von Hartens were present. Eastern Star carried out seismic testing on or about 21 September 2008 after which Mr Grammer noticed adverse effects to the fish farming operations, including that the breeding program had shut down. 30Mr Grammer prepared a report on these matters, showed it to the Von Hartens on or about 20 October and thereafter to employees of Eastern Star. Dean Von Harten's response included, "This looks pretty good for us and bad for ESG. Do you think that you can prove it? It looks convincing to read but you have to prove it." According to Mr Grammer, on or after 31 October he had further conversation with the Von Hartens about taking proceedings in the Mining Warden's Court. 31Mr Grammer said that on about 20 November 2008 he was told by Mr Edgar of Eastern Star, "Do what you want. As far as ESG is concerned ESG has nothing to answer for". He then had a discussion with both of the Von Hartens concerning these matters, expressed the view that NVAF should apply to the Mining Warden's Court for compensation from Eastern Star and Dean Von Harten said, "Makes sense to me. Do what you have to do". 32Mr Grammer said that some days later he showed the completed court application form to Ron Von Harten who again endorsed the procedure and after the notice of first listing was received spoke to both Von Hartens who, by their responses, again appeared to approve the institution of proceedings. Mr Grammer said that later both approved the engagement of Mr McHugh and a number of other steps Mr Grammer took. Documents in evidence lead no room for doubt that prior to the commencement of proceedings Mr Grammer put a deal of effort into researching the grounds for a claim against Eastern Star. 33As has been indicated, Mr McHugh was engaged on or about 22 January. On 23 January 2009 Mr McHugh wrote two letters on the letterhead of TLC addressed to "Steve Grammer Namoi Valley Aquafarming Pty Ltd". One letter purported to record directions made by the Mining Warden on 22 January. The other letter commenced, "We thank you for entrusting The Law Company with the instructions for your matter" and enclosed an offer to enter into a costs agreement. The Costs Disclosure statement enclosed estimated that the costs would be not less than $60,500. The address on the letters was Mr Grammer's home address. 34In February according to Mr Grammer, Ron Von Harten had approved extending NVAF's overdraft to cover costs of the proceedings and, as late as late as about 11 March 2009, approved the engagement of an expert in seismology and geology. 35The next event referred to in Mr Grammer's principal affidavit was the letter of 28 March 2009 to Mr McHugh. 36The response of the two Von Hartens to this evidence was to assert that they had no knowledge that proceedings in the Mining Warden's Court were contemplated until after they had commenced and that they never approved such proceedings, and to deny the substance of the conversations attributed to them and summarised above. There were inconsistencies as to when they became aware of the proceedings but the Von Hartens were consistent in the evidence just summarised. Ron Von Harten denied receiving a copy of Mr Grammer's report and Dean Von Harten gave evidence to the contrary of Mr Grammer's concerning the impact of the seismic testing. There is no possible way of reconciling the accounts given by Mr Grammer on the one hand and the Von Hartens on the other as to these conversations. Nor do I see any possibility of the explanation for the inconsistency lying in faults of recollection. 37The Von Harten's letter of 28 March 2009 was faxed to Mr McHugh. It consists of two pages. One reads:- Mr McHugh I wish to notify you on behalf of Ron Von Harten and Dean Von Harten the undersigned shareholders in Namoi Valley Aqua Farming Pty Ltd that after viewing the documentary evidence supplied by Steve Grammer regarding legal action against Eastern Star Gas have agreed that we do not want to be involved in this matter and that Mr Grammer has no authority to act on our behalf as shareholders of the above company. 38A second, also handwritten page, which may have been sent at the same time although it bears the notation "3.35pm 27/3/09", reads:- Instructions from Directors Dean Von Harten @ Ron Von Harten as Directors of Namoi Valley Aqua Farming wish to withdraw all legal action against Eastern Star Gas effective from 27 March 2007 (sic). MM is under instruction of manager - Directors have looked @ it & not want to pursue. Unless Steve, Manager wants to continue he can do so in his own capacity. 39Dean Von Harten said that the letter was written because from January he had been asking Mr Grammer to stop the proceedings and the latter would agree and then change his mind. Ron Von Harten said that he also had told Mr Grammer that he was against the proceedings. His opposition was because he viewed the claim as fraudulent and he was risking his equity in the farm. 40On receipt of the letter of 28 March, Mr McHugh contacted Mr Grammer and the latter organised a meeting for 29 March. The minutes of the meeting describe it as a "special Directors meeting regarding court proceedings ...", describe those present as "Directors: Dean Von Harten, Ron Von Harten" and "Managing Director: Steven Grammer". The minutes record that the Von Hartens had concerns in relation to the court proceedings and evidence NVAF were proposing to present including, it would appear, numbers in the breeding program which they thought wrong and also with the costs of the proceedings. The Minutes also include the following:- Steven Grammer then further explained to both Ron and Dean Von Harten that to call off the proceedings now would be futile in reducing costs as most of the costs regarding evidence was already spent/guaranteed and that from this point it was a smarter situation to proceed with the evidence as Eastern Star Gas will have to furbish us also with their defence evidence prior to the hearing around the end of next month being April 2009. It was further suggested by Steven Grammer that once Eastern Star Gas had submitted their defence evidence and also present to our legal advisors copies, that I ... Steven Grammer, would convene/call another special meeting of the directors including Namoi Valley Aqua Farming Lawyer, Mr Michael McHugh to present all the evidence for and against in regards to the court proceedings and direction/advise to the Trust's Directors. This was agreed by both Dean Von Harten and Ron Von Harten. Steven Grammer then advised that he would draft a copy of the Minutes of this meeting and present a copy for both Dean and Ron Von Harten for their records and that all Directors sign the Minutes of this meeting and that Steven would then fax a signed copy to Mr Michael McHugh... 41The Minutes were signed by Mr Grammer and the two Von Hartens and, according to Mr McHugh received by him on or about 31 March. There is nothing in the minutes bearing on the issue of whether the institution of the Warden's Court proceedings was authorised or agreed to prior to the meeting on 29 March. 42On 22 May 2009 the solicitors acting for Eastern Star wrote to Mr McHugh offering to settle the proceedings on the basis that the claim would be dismissed and that there would be no order as to costs. The offer was expressed to be made in accordance with the principles enunciated in Calderbank v Calderbank and to expire at the close of business on 29 May 2009. The letter bears a notation that it was sent by email. 43A meeting was then held on 25 May. The evidence concerning it contains many contradictions. In his affidavit of 31 March 2010, Mr Grammer said that the two Van Hartens, Mr McHugh and himself were present at the meeting, that the Van Hartens and he agreed that damage had occurred in consequence of Eastern Star's activities, that after some discussion Mr McHugh said:- "You need to hold a meeting of the company's directors and shareholders and decide what you want to do in respect of ESG's offer, and their future conduct of the case. I strongly recommend you make a counter-offer to ESG." 44According to Mr Grammer, there was then further discussion apparently concluding with the Von Hartens asking what offer should be made and Mr Grammer saying he would work that out with Mr McHugh and let them know. 45In oral evidence Mr Grammer asserted that the meeting was not a meeting of directors but a request by the Von Hartens for a meeting with Mr McHugh to update them on the proceedings. He said there was no input from him and he was not present throughout the meeting. He conceded that he had approved a letter of 28 May, referred to below, that described the meeting as a "Directors and Shareholders Meeting". 46In his affidavit of 21 May 2010 Mr Dean Von Harten said that after discussion Mr McHugh then said that the directors should "all now vote on continuing the Wardens Court proceedings or not" and that all three directors then voted. He went on to say that he and his father voted to end the proceedings but Mr Grammer seemed to abstain saying he would have to talk to his wife about it to which Mr Dean Von Harten responded "What is there to talk about Steve, the board has voted". 47In oral evidence Dean Von Harten said that he thought that Mr Grammer's reference to talking to his wife had occurred at an earlier meeting a week earlier around a cup of tea. He asserted also that at the meeting on 25 May there was a formal raising of hands, he and his father in favour of dropping the case, that Mr Grammer raised his hand against dropping the case and that he, Dean, said to Mr McHugh "last time I went to school two out votes one." 48Dean Von Harten also said that the meeting was "just like a discussion type meeting, not an actual directors' meeting (but) I believe I said... that we are all here. We are all directors. Let's vote on it, and that is when we had a raise of hands." He rejected the suggestion that there was no formal vote. 49In his Affidavit Mr Ron Von Harten said that at the meeting he and his son voted to end the Wardens court proceedings and to accept ESG's offer and that Mr Grammer did not vote but said he would have to talk to his wife. 50In oral evidence Mr Ron Von Harten also agreed that Mr Grammer's reference to talking to his wife may have been on an earlier occasion. He agreed that he did not regard the meeting as a formal directors' meeting at which motions were going to be put and votes taken and that there was no formal vote about whether the court proceedings should continue. 51On this topic of a vote, there was also evidence from Mr Grammer:- Q. Towards the end of the meeting didn't someone suggest that there should be a vote on the question of whether to continue to the proceedings? A. Yes. Q. And that was Mr McHugh suggested that wasn't it? A. No the first suggestion come from Dean Von Harten. Q. It was Dean who suggested it? A. From my recollection at the moment. Q. That was a suggestion that both the Von Hartens and you agreed with, namely that there should be a vote? A. We agreed that there should be a vote. Q. And the --? A. No sorry they requested a vote. I disagreed on a vote. It was not a formal meeting in the first place and because in light of why the meeting was there they had not time to absorb and think about their decision from what Michael had informed them. Q. And isn't the position that the Von Hartens actually did proceed to vote, they both put up their hand and said, "We want to discontinue the proceedings"? A. Yes they did. Q. You said you wanted to continue with the proceedings didn't you? A. Yes. 52In his Affidavit Mr McHugh said that at the meeting Mr Grammer announced that Mr McHugh was there to explain things and then walked away. Mr McHugh then provided an explanation and confirmed that an ambit claim of $1million had been made to which Dean Von Harten responded "that's bullshit". 53Mr McHugh said that Mr Grammer then rejoined the meeting. There was a debate about fish egg numbers and how to calculate any loss. There was discussion of what conversation Dean had had with representatives of Eastern Star and that he, Mr McHugh said:- As you know we have received a letter from Eastern Star Gas. If you want to accept the offer, then I want all the directors, shareholders and unitholders to sign a minute to authorise that in writing." 54According to Mr McHugh, Dean Von Harten then indicated that he and his father wanted to accept the offer and if Mr Grammer wanted the matter to continue he could pay the costs. Mr McHugh then said that they had not seen Eastern Star's Defence or their evidence, that NVAF had a strong case on liability and suggested the matter be reviewed when Eastern Star's Defence and evidence was available: Dean Von Harten said "alright then" and Mr McHugh believed Ron Von Harten nodded in agreement. 55In oral evidence Mr McHugh agreed that immediately following the meeting it was clear that the Von Hartens wanted to accept Eastern Star's offer and Mr Grammer wanted to press on. He asserted that it was not a formal meeting, that both the Von Hartens expressed the view they thought the claims made were baseless, that Mr Ron Von Harten said he considered the claim fraudulent, that Mr Grammer was absent for most of the meeting and the Von Hartens present on and off. He denied both that anyone suggested the directors needed to vote and that the Von Hartens put up their hands and said something like "we vote to end the proceedings". 56At 1:01 pm on 28 May Mr McHugh sent an email to Mr Grammer in terms "Steve Letter attached". At 2.20 that day Mr Grammer replied saying that he was happy for Mr McHugh to send the letter to the Von Hartens but should request them to reply by a signed and dated fax and by signing and dating and faxing a copy of the letter sent to them. Mr Grammer's reply also contained the observation:- As for my decision so far as a counter offer to ESG or going forward with the case I am reserving my right and in the capacity of Managing Director of Namoi Valley Aquafarming pty ltd. (sic) 57Also on 28 May - I would infer later in the day - Mr McHugh wrote a letter address to "The Directors" of NVAF in which said "Please find enclosed letter to the directors, dated 28 May 2009, seeking instructions". The letter went on:- A decision must be made by the directors or, if they cannot agree, the shareholders. By consent you may hold the meeting in person, by telephone or by email. As the company's solicitors, we require clear unequivocal instructions from the directors or shareholders. The instructions must be in writing and signed by all of you. In the event that there is no unanimous agreement, the matter can be resolved by the majority of shareholders or by Stephen Grammer in his capacity as Managing Director. Please let us have your urgent instructions. 58What I infer to be the "enclosed letter" and a copy of the one emailed to Mr Grammer was also addressed to "The Directors". It referred to "the Directors and Shareholders Meeting with Mr Steven Grammer, Mr Ron Von Harten and Mr Dean Von Harten... on 25 May 2009", contained a summary of what Mr McHugh presumably thought to be an outline of the relevant law and facts, referred to ESG's offer of 22 May and continued:- We confirm that Ron Von Harten and Dean Von Harten want NVA to accept that offer. We note that Steve Grammer wishes to continue with NVA's claim. ... NVA must hold a meeting of its directors and shareholders and pass a resolution in relation to ESG's offer and the future conduct of the case 59The letter then canvassed the offer and recommended that NVAF make a counter-offer. The letter concluded with advice that the directors of the company should not communicate with ESG without the consent of all Directors and advised that the use by directors of information gained through their position as such in the wrong way and dishonestly might be a crime. The letter did not otherwise refer to what had happened on 25 May. 60The Von Harten's replied in a letter signed by both. The letter reads:- We direct you to have the case against Eastern Star Gas dismissed in accordance with the offer received from Eastern Star Gas. This was agreed to at the meeting held on the premises of Namoi Valley Aqua Farming with Steven Grammer, Ron Von Harten and Dean Von Harten on the 26 May 2009. 61The Von Harten's reply is undated although Mr McHugh responded to it on 29 May. The response included the following:- We are instructed to advise that, notwithstanding the assertion therein that an agreement had been reached between all shareholders as to the future conduct of this matter, the direction outlined in that facsimile is in error. Further, we are instructed by Mr Grammer, the majority shareholder, that no such agreement has been reached and further that, until such time as there is a direction in writing, executed by all shareholders, this firm is to accept instructions from the Managing Director of the corporate entity and the majority shareholder. On our instructions, the person holding these corporate offices is Mr Steven Grammer. We further note that, on the basis outlined above, we are instructed to reject the Offer of Compromise outlined in the letter from Messrs Piper Alderman dated 22 nd May last and to submit a counter-offer. ... We thank you for your facsimile, however we again advise that the facsimile is not binding until signed and executed by all Directors. 62This letter also did not otherwise canvass events on 25 May. It did go on to observe that there seemed to have been "communication between certain parties from the Applicant Company and the Respondent entity" and, despite saying it was not "some veiled threat" went on in terms to point out that action could be taken against persons who acted in a manner detrimental to the corporate structure and that if such person was a director he might be liable personally for damages. 63Neither of Mr McHugh's letters of 28 or 29 May recorded any agreement on the part of the Van Hartens to continue the proceedings pending receipt of Eastern Star's Defence and evidence. Nor did those letters point out that the Von Hartens could outvote Mr Grammer. Cross examined on these omissions, Mr McHugh's evidence was not impressive. 64On 1 June Mr McHugh wrote to ESG's solicitors rejecting the offer of 22 May and making a counter offer. 65On 3 June Mr McHugh forwarded to "The Directors" of NVAF a Deed of Indemnity" for execution by NVAF and each of the directors and a draft of a Company minute relating thereto. The letter also recommended that "you seek independent legal advice before you sign the Indemnity" -CB 1074 66That letter elicited a reply from the Von Hartens dated 4 June in which they rejected the Deed of Indemnity and the draft minute and "As directors of Namoi Valley Aquafarming we are again requesting that you, Michael McHugh, have this case dismissed immediately." 67There followed a threat by Mr Grammer to institute proceedings in this Court and a letter from Bell Johnson, solicitors, on behalf of the Von Hartens, making enquiries concerning various matters associated with the Deed of Indemnity and asserting that the Von Hartens did not consent to the action being taken against ESG and were concerned "that the proceedings are based on assertions that are patently untrue". 68Before leaving this history of events, I should refer to some earlier affidavits. Two of Mr Grammer of 8 and 21 April 2009 are not presently relevant. On 23 June 2009 both Dean and Ron Von Harten swore affidavits in terms that are for all practicable purposes identical but that do not seem to me to add anything of significance in their own right. They however contained denials that Mr Grammer had been appointed as Managing Director and that there had ever been a meeting authorising the commencement of the proceedings. 69To these affidavits Mr Grammer responded in an affidavit of 23 June 2009. The tenor of it was that he had been appointed Managing Director and that he, as Managing Director, instructed TLC to commence proceedings. He referred also to the meetings of 29 March and 25 May and some later events. He made no suggestion that there had been approval of the Von Hartens to the proceedings prior to their commencement. In a later affidavit of 1 September 2009, Mr Grammer did however give evidence similar to that referred to above as to conversations with the Von Hartens prior to the commencement of proceedings. 70More must be said as to the position of Mr McHugh and TLC. In his affidavit Mr McHugh said that Ms Crossing had introduced Mr Grammer to him as that Managing Director of NVAF, that over a number of years TLC had opened 7 files on behalf of NVAF on the instructions of Mr Grammer. A paragraph of Mr MCHugh's affidavit was read wherein Mr McHugh said that "At no time in my presence did Ronald Von Harten or Dean Von Harten object to or challenge Steven Grammer being called the Managing Director of the Company or to his giving me instructions ... ". However it should also be said that, in consequence of the disallowance of an earlier paragraph and no attempt to overcome the disallowance with oral evidence, there was no evidence admitted to the effect that in meetings that included the Von Hartens, Mr Grammer had been referred to as Managing Director. 71The earliest evidence that could constitute the holding out by NVAF of Mr Grammer to Mr McHugh as Managing Director was the minute of 29 March 2009 wherein Mr Grammer is so described and while that document was preceded by the handwritten fax of 28 March wherein it was asserted that Mr Grammer "had no authority to act on our behalf as shareholders of" NVAF, the minute at the very least envisages the continuation of the proceedings for some time. Mr McHugh gave no evidence to the effect that he had relied on the description given to Mr Grammer in this document although it is clearly to be inferred that he did rely on the minute as justifying the continuation of the proceedings for some period. 72On the other hand, it should be noted that in the Points of Claim in the Warden's Court and in affidavits of 8 and 21 April 2009, drafted by Mr McHugh, Mr Grammer was described as "manager", and in Mr Dingle's employment contract, also drafted by Mr McHugh Mr Grammer was described as general manager - T189 73Mr McHugh said that on 21 May he received a phone call from Dean Von Harten expressing disquiet at the continuation of the proceedings. That disquiet on the part of both the Von Hartens was confirmed by Mr Grammer on the following day and there followed the meeting of 25 May. 74Mention should also be made of the fact that drafts of Eastern Star's Defence and evidence were received on 16 June, formal service occurring on Friday 19 June. Mr McHugh reviewed the evidence with Mr Grammer on 20 June, then telling Mr Grammer that he should give the Von Harten's written notice of a meeting to discuss the material. This notice seems to have been given for a meeting at 6pm of Sunday 21 May but the Von Harten's did not attend. Mr McHugh did not provide the material to the Von Hartens or inform them it had been received. 75Mr McHugh was questioned also on his approach to receiving instructions. The evidence included the following:- Q. And your attitude to the meeting (envisaged for 21 June 2009) was that if the Von Hartens attended and instructed you to terminate the proceedings, then you would tell them that you wouldn't do that but rather that you were going to act in accordance with Mr Grammer's instructions? A. Of course. By that stage I advised them to both take independent legal advice. Q. Hadn't you arrived at the view that Mr Grammer was entitled to instruct you because he was the majority unit holder? A. He was the managing director and majority unit holder. Q. ... Q. At all times in June you took the view that it did not matter what the Von Hartens wanted to do, you could act in accordance with Mr Grammer's instructions? A. Of course it mattered what they wanted to do. Q. And the view you took, at the time that this meeting was called, was that if the Von Hartens attended the meeting and told you to terminate the proceedings, then you would refuse to act in accordance with that instruction? A. No. His Honour Q. Did you have the belief that Mr Grammer, because of any position he had as managing director and as a majority unit holder, was in a position to give you instructions despite opposition from the Von Hartens? A. In his capacity as managing director subject to a formal resolution otherwise. Q. Formal resolution of whom? A. Of the Directors. 76Mr Scruby, counsel for Eastern Star and the Von Hartens then resumed questioning. After a little time he took Mr McHugh to his fee ledger for 2009 and to an entry for 19 June. The questioning proceeded:- Q. You see that that entry says: "call a combined meeting of directors and unit shareholders. The company is the trustee of the trust and the company holds the assets for the trust for the benefit of the unit holders. Review the evidence. Offer the indemnity. Take the view that the unit holders can direct the trustee"; do you see that? A. Yes. Q. And that reflects the fact, doesn't it, that by 19 June you had formed the view that at any meeting of the directors, if the Von Hartens told you that they wanted to terminate the proceedings, you would take the view that the unit holders can direct the company, correct? A. That is what it says but whether that is right at law is another issue. His Honour: Q. The question was, that was the view you held at the time? A. Yes, it was. Scruby Q. Would you take the view that because Mr Grammer was the majority unit holder he could direct the company? A. He could direct the trustee, yes. Q. Who was the company? A. Yes. Q. You said before, "whether that is right or wrong is another matter"? A. I didn't act on that view. 77It is also appropriate that I record that, given the extent of the conflict between Mr Grammer and the Von Hartens, I paid particular attention to these witnesses and Mr McHugh while they were being questioned. There was nothing in the demeanour of any one of them to suggest he was lying or unreliable. The general tenor of the documents for which persons were responsible leads to the view that the Von Hartens were fairly simple while Mr Grammer was much more sophisticated and, at least to some degree, cunning. The conflicts in the evidence mean that I must, at times, choose between the evidence of the witnesses. In general, where there is a conflict, I prefer the evidence of the Von Hartens to that of Mr Grammer and Mr McHugh, largely because their account struck me as more genuine than Mr Grammer's. 78So far as Mr McHugh is concerned, I was influenced also by the tenor of his correspondence which indicates that he did not maintain an attitude of neutrality between the directors and, consciously or unconsciously but very definitely, allowed himself to favour Mr Grammer. Also, I was not impressed with Mr McHugh's explanations for a number of his actions. 79What conclusions should be drawn from the above? Firstly, I am of the view that Mr Grammer was never appointed to the position of Managing Director. No extant copy of the minutes supports Mr Grammer's evidence in this regard and the minute recording Mr Grammer's appointment as a director does not support Ms Crossing's evidence that it was at that time Mr Grammer told her he had been appointed Managing Director. 80Secondly, even if Mr Grammer were appointed Managing Director, I am satisfied that at no time were any powers formally conferred on him as envisaged by Article 81. I can accept that authority was impliedly conferred by the directors on Mr Grammer to implement and carry out administrative or incidental tasks associated with the day to day activities of NVAF but I do not regard this implied authority as encompassing the undertaking of significant litigation of anything like the size or nature of that against Eastern Star - c.f. Ford's Principles of Corporations Law , 14 th Ed, para [13.070] and the cases there cited. 81Thirdly, I am satisfied that prior to the institution of the proceedings in the Mining Warden's Court, the Von Harten's did not agree to such litigation being instituted. Particularly significant in this connection is the clear evidence that, albeit in 2009, they regarded the claim as unjustified or fraudulent, and the inconsistency between that stance and Mr Grammer's evidence that on seeing his report in October 2008, Dean Von Harten said that it looked good for NVAF. Obviously other information may have become available or been appreciated in the meantime but such a considered change was not suggested. My conclusion is reinforced also by the absence of evidence in the March minutes drafted by Mr Grammer to the effect that the Von Hartens had earlier approved the proceedings and Mr Grammer's attitude, apparent in his email of 28 May that, as Managing Director, he had the right to decide. 82Fourthly, I do not regard the meeting in March and the Von Harten's agreement recorded in the minute of that time to await Eastern Star's evidence as a ratification of the institution of the proceedings. There is not the clarity normally required for ratification and rather does it seem to me that their actions then should be regarded as mere acquiescence in Mr Grammer's request to defer a decision and not to call off the proceedings at that time. 83Fifthly, even if, vis a vis, Eastern Star, the Von Harten's conduct evidenced by the 29 March 2009 minute did represent ratification of the institution of the proceedings, the circumstances in which that conduct occurred would not lead me to depart from a conclusion that Mr Grammer should pay the costs if that conclusion was otherwise justified. 84Sixthly, I think the probability is that there was a vote taken at the meeting on or about 25 May. I am conscious of the evidence of Ron Von Harten and Mr McHugh and the fact that Mr McHugh's correspondence of that time does not record such a vote and that these matters argue to the contrary but I do not believe Mr Grammer would have answered as he did if there was no vote. It may be that Mr McHugh did not refer in his letters to any vote because he did not regard the meeting as a formal directors' meeting but be that as it may, I prefer the evidence of Dean Von Harten and Mr Grammer in this respect. I accept that the reference to "agreed to" in the undated letter of the Von Hartens of about 28 May is to overstate the situation if understood as encompassing agreement by Mr Grammer but it does not do so if understood as referring to their agreement in circumstances of a binding vote. 85I am also of the view that the circumstances of the vote were such as to make it a valid vote of the directors. Certainly, there was a degree of informality about those circumstances but given the occasion for the meeting and the circumstances of the vote, I do not regard such informality as there was as negating the conclusion at which I have arrived. 86Seventhly, the letters to Mr McHugh, although signed and sent by a majority of the directors of NVAF, were not decisions of NVAF. Unless decisions are unanimous, they have to be made at a properly convened meeting of directors. 87Eighthly, it follows from these conclusions that the Warden's Court proceedings commenced in NVAF's name were not authorised by the Company. Mr Grammer had no authority to commence them and Mr McHugh acted in them without the actual authority of NVAF. This conclusion makes it unnecessary for me to rely on the fact that the Mining Warden in his decision of 30 June also determined the issue of authority against Mr Grammer. 88Ninthly, I see no basis for concluding that, prior to 28 March 2009, NVAF provided any ostensible authority to Mr McHugh to the effect that Mr Grammer was its managing director. The minutes of that date did however amount to a representation that Mr Grammer was Managing Director and entitled Mr McHugh to conclude that thereafter, at least until some supervening event occurred, his engagement had the assent of NVAF. As I have indicated, however, I do not see in the terms of that minute ratification of Mr Grammer's actions in commencing the proceedings or originally instructing Mr McHugh. Nor do I see in that document any representation to the effect that Mr Grammer's authority, whether in the guise of managing director or otherwise, extended to the institution of the Warden's Court proceedings. 89Tenthly, from the time of the meeting of 25 May, Mr McHugh's authority in respect of the litigation against Eastern Star was confined to accepting that company's offer to settle the proceedings and carry out ancillary tasks to conclude them. On the view I have formed as to what occurred at that meeting, Mr McHugh was so informed irrespective of his own view of the nature of the meeting. 90These conclusions, and particularly the eighth, lead to the view that an order for the costs of the Warden's Court proceedings should be made against Mr Grammer. I am also of the view that an order for the costs of those proceedings should be made against Mr McHugh and TLC although, because of what I conceive the situation to have been between 28 March and 25 May, that order should not extend to the whole of the costs. 91No party sought to adduce evidence of what costs there may have been during that period or of the relativity between them and other costs. It does not seem sensible to force a further hearing for the purposes of ascertaining that detail and justice can be served if I make some approximation of them. In doing so, I am conscious of the fact that the proceedings were commenced without Mr McHugh's involvement and of the time Eastern Star's Defence and evidence was served and many of the costs associated with those matters likely to have been incurred. In these circumstances, I propose to order that Mr McHugh and TLC pay 50% of Eastern Star's costs of the Warden's Court proceedings. 92A question then arises whether Mr Grammer should be liable to indemnify Mr McHugh and TLC for any costs those persons have to pay. After all, Mr Grammer was the original author of the problem, impliedly asserting an authority that he did not have (and, given the Articles of which he should have been aware, should have known he did not have). But for two matters, I think that Mr Grammer should so indemnify. 93The reservations arise from two matters. The first arises from the terms of the advice that Mr McHugh gave to Mr Grammer, the Von Harten's and NVAF. That advice was, in so many respects clearly wrong. Even putting aside the issue of any binding vote at the 25 May meeting, it was clear that two of the three directors of NVAF wanted to end the proceedings and, subject to any rights of control unit holders might have, were in a position at a directors' meeting to overrule Mr Grammer and dictate what should occur. Mr McHugh never so informed his clients Mr Grammer or NVAF or the other directors of NVAF, the Von Hartens. Furthermore, when regard is had to the terms of the trust deed, the unit holders had no right to control the NVAF's actions, a matter which was easily ascertainable if Mr McHugh had looked. 94The second matter inspiring the above reservation is my conclusion that there was a valid vote at the 25 May meeting while Mr McHugh was present. He was bound to implement it and had he done so and accepted Eastern Star's Calberbank offer, no costs would have been payable to it. 95In these circumstances, it does not seem to me that Mr Grammer should be obliged to indemnify Mr McHugh and TLC. In that situation, it seems to me that he should not be made to actually pay more than 50% of the costs of Eastern Star unless it become apparent that that company will not or may not be able to recover under the order for costs against Mr McHugh and TLC. This result can be achieved by an appropriate partial stay of the order in favour of Eastern Star and against Mr Grammer. 96There is also a question as to the rate at which costs should be paid. Counsel for Eastern Star and the Von Hartens submitted that when costs are ordered against a solicitor for conducting litigation without authority they are normally on a solicitor and client or, in recent times, on an indemnity basis - AW & LM Forrest Pty Ltd v Beamish [1998] 146 FLR 450. He also drew attention to the Calderbank aspect of the letter of 22 May. 97The Calderbank aspect of the letter of 22 May would not have resulted in indemnity costs prior to that time. In circumstances where an order against Mr McHugh and TLC will be on an indemnity basis, it seems to me that it would be appropriate to make the order for costs in favour of Eastern Star against Mr Grammer on the usual party and party basis. 98The Von Hartens seek the costs of their motion filed in the Warden's Court on 23 June 2009 and resist any claim for contribution against them. - T214. They rely on what they assert was the lack of authority to commence proceedings, Mr McHugh's failure to terminate the proceedings after 25 May and what they claim was his withholding of advice as to how they might have terminated the proceedings because he was, according to the submission, acting in Mr Grammer's interests. As I have said, the Mining Warden made and order for the Van Hartens' joinder and in the circumstances prevailing on 23 June, when Easter Star were still pursuing a costs order against NVAF, it was quite reasonable for the Von Hartens to seek to become parties and have the matters they relied on considered. 99In the proceedings before me they had the same representation as Eastern Star so there was no unnecessary duplication of costs at that stage. It is appropriate that the Von Hartens have the costs orders they seek. In terms of proportion and rate, the orders in their favour should echo those made in favour of Eastern Star against Mr McHugh, TLC and Mr Grammer although, if for any reason they are unable to recover against Mr Grammer, Mr McHugh and TLC should be liable for what Mr Grammer is. (Given that the Von Hartens themselves were not entirely blameless so far as their knowledge of company directors' responsibilities and powers, I am not disposed to make all costs in the Mining Warden's Court payable to the Von Hartens, payable on an indemnity basis.) 100There remains the question of costs of the proceedings in this Court. It is clear that by the time of the hearing before me, all parties know of the respective positions of the others and what the evidence revealed. Having regard to the dates of the principal affidavits it seems likely that that has been the situation since not long after Fullerton J ordered that the proceedings in the Mining Warden's Court be transferred into this Court. In these circumstances, it seems to me that an appropriate exercise of my discretion concerning costs is to deal with the costs in this Court separately from the costs of the proceedings in the Mining Warden's Court and to order that proceedings in this Court be paid on a party and party basis. 101Again there are qualifications. The costs of the proceedings before Fullerton J were reserved. Mr Grammer would seem to have been the successful party at that time but I have no detailed knowledge of what occurred in connection with that application. Without notice to the parties, it seems to me that I should not deal with those costs at least at this stage. Although the matter has not been argued, I am also inclined to except from any costs order in favour of Eastern Star and the Von Hartens the costs of preparation of the three volumes of the Court Book that was used in the proceedings. While virtually all of the relevant documents are to be found in that book, the order in which it was compiled made it one of the most inconvenient collections of paper it has ever been my misfortune to deal with. I suspect the costs of all parties was increased by its form. 102Accordingly, the costs order I propose to make relating to proceedings in this Court will relate to "the costs of and incidental to the hearing before me (save and except for the costs of an incidental to the preparation of the Court Book). 103There remains one further matter to which I should refer. At T20 and 21 the admissibility of an affidavit of Mr Washington arose and it was admitted subject to objection. The solicitor for Mr Grammer also indicated that he was making a claim against the Von Hartens for indemnity upon the basis that he was acting in the best interests of NVAF. There was little evidence as to Mr Grammer's bona fides in pursuing the claim that he did but the statements by the Von Hartens, including the statement by one that the claim was fraudulent, leave me unpersuaded that Mr Grammer had a genuine belief that NVAF had suffered damage in any significant degree. Accordingly the claim for indemnity fails. Given that the foundation for any opinion by Mr Washington would have to be the raw data showing loss, and that was not before me in any significant way, I regard his affidavit as irrelevant. I should add that I was not taken in submissions to any evidence that showed that Eastern Star's activities were likely to have caused damage to NVAF's business activities. 104I am not conscious of any costs order, other than those to which I have referred, being sought but the parties should feel free to raise any such application that I have overlooked. Given the number of reservations I have made concerning the orders I propose, I will stay my orders for a limited period and give the parties an opportunity of applying to vary those orders on account of matters not going to the substance of the principal issues I had to decide. 105Subject to those qualifications, the orders that seem to me appropriate are: (i) Order Michael McHugh and The Law Company Pty Ltd to pay 50% of the costs of Eastern Star Gas Limited of the proceedings in the Narrabri Mining Warden's Court, such costs to be paid on an indemnity basis; (ii) Order Steven Grammer to pay the costs of Eastern Star Gas Limited of the proceedings in the Narrabri Mining Warden's Court; (iii) Upon payment by Mr Grammer of 50% of the amount he is liable to pay pursuant to order (ii), stay further proceedings on that order until further order of this Court; (iv) Order Michael McHugh and The Law Company Pty Ltd to pay 50% of the costs of Ronald and Dean Von Harten of and incidental to their motion filed on 23 June 2009 in the Narrabri Mining Warden's Court, such costs to be paid on an indemnity basis; (v) Order Steven Grammer to pay the costs of Ronald and Dean Von Harten of and incidental to their motion filed on 23 June 2009 in the Narrabri Mining Warden's Court; (vi) Upon payment by Mr Grammer of 50% of the amount he is liable to pay pursuant to order (v), stay further proceedings on that order until further order of this Court; (vii) Order Michael McHugh and The Law Company Pty Ltd to pay, in addition to the amount ordered in (iv) above, 50% of the costs of Ronald and Dean Von Harten of and incidental to their motion filed on 23 June 2009 in the Narrabri Mining Warden's Court, such costs to be paid on a party and party basis; (viii) Stay order (vii) hereof until further order of this Court and, in the event Steven Grammer makes full payment pursuant to order (v) hereof, stay order (vii) permanently. (ix) Order that Michael McHugh and The Law Company Pty Ltd pay the costs of and incidental to the hearing before me (save and except for the costs of and incidental to the preparation of the Court Book) of Eastern Star Gas Ltd and of Dean Von Harten and Ron Von Harten. (x) Grant liberty to apply to all parties to apply, by Notice of Motion filed and served on all other parties on or before 24 June 2011 and returnable before me during the week commencing 11 July 2011, to vary or supplement the aforesaid orders. (xi) Stay all proceedings on these orders up to and including 24 June 2011 and in the event any Notice of Motion is filed and served on all parties pursuant to the liberty to apply herein granted, until further order.

GRAMMER AND ORS v BAILEY AND ORS

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Judgment (5 paragraphs)

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