Gray v Sirtex Medical Ltd [2007] NSWSC 476 | Case summary

5712/06 BRUCE NATHANIEL GRAY v SIRTEX MEDICAL LIMITED JUDGMENT 1 This is yet another matter in which the only question to be determined by the court is the question of costs. 2 The plaintiff was at all material times a director and shareholder of the defendant. In November 2006, he commenced proceedings in which he sought to have the court compel the production to him of certain financial records of the defendant for inspection and copying. The parties eventually reached an accommodation under which the defendant produced certain documents to the plaintiff. The regime the parties adopted by consent included reservation of liberty to apply. The record of proceedings before White J on 13 December 2006 included the following: "I note that the parties have reached an agreement which, subject to the possible exercise of liberty to apply, resolves the application." 3 His Honour then granted liberty to apply and the proceedings were adjourned to 1 February 2007. 4 The parties are agreed that, in light of the consensual outcome, the proceedings should be dismissed. But they do not agree on the appropriate order as to costs. The plaintiff says that he should be awarded costs. The defendant's position is that there should be no order as to costs and that each party should bear his or its own costs. 5 The principles to be applied in cases such as the present were recently summarised by Beazley JA in Foukkare v Angreb Pty Ltd [2006] NSWCA 335 where reference was made to the leading authorities, including Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622. Her Honour said (at [66] to [68]: "In Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 Hill J summarised the principles that have emerged from the case law as to how the Court should approach the exercise of discretion in respect of costs when there has been no hearing on the merits. He said (at 201): "(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order … (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them … (4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation … (5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted …'

The same question was considered in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622. McHugh J said at 624 -625: 'In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.' (Footnotes omitted) The principles discussed in these cases apply where a court is asked to make an order under UCPR 42.19. This was recognised in Fordyce v Fordham , where McColl JA (Beazley and Santow JJA agreeing) said, after pointing out the default orders provided for under the rules governing discontinuance (see UCPR 42.19): '84 [ UCPR 42.19 is] a relevant, but not determinative, consideration. Other relevant considerations were, as the primary judge concluded, usefully gathered in Lai Qin and Australian Security Commission v Aust-Home Investments Ltd & Ors (1993) 44 FCR 194, notwithstanding, as the discussion below reveals, that they were decided in a different statutory context. … 87 Once it is recognised, however, that the costs discretion conferred by UCPR 42.19 … is unconfined, the matters referred to in the Lai Qin line of authority are plainly pertinent, although, again, not necessarily determinative.'" 6 With these principles in mind, I must consider mainly whether it has been shown that one party acted unreasonably in either pursuing or defending and whether any unreasonable behaviour in such a respect warrants a departure from the prima facie expectation that the parties should bear their own costs. 7 The plaintiff's position is that he developed a reasonably held concern that company funds had been expended otherwise than for company purposes. He therefore sought to inspect certain financial records but was, he said, met by "prevarication as to the terms on which it might be permitted". He wrote to the company secretary on 12 October 2006. There was a reply on 16 October 2006 expressing a concern that, if access were given, the plaintiff might use the information for improper purposes, it being alleged that he had done something similar before. The plaintiff's right, as a director, to have reasonable access to the company's financial records was acknowledged, but there was reference also to his "corresponding obligation" to exercise the right only for proper purposes. An inquiry was then made as to the purposes for which the plaintiff sought access. 8 By letter dated 18 October 2006, the plaintiff explained that his purpose was related to his apprehension that other directors had caused company funds to be applied for their personal benefit or protection in relation to certain litigation. 9 A response dated 19 October 2006 from the chairman said, in effect, that the apprehension was unfounded and that, in any event, the company secretary would be asked to extract, and give to the plaintiff, "details of all payments made on behalf of, and reimbursements made to, all directors for the past three financial years and continuing to date, on account of travel, accommodation, costs, fees and other matters". Reference was then made to the fact that the secretary was busy preparing for two general meetings "next week" and that the instruction would be that the secretary "commence this process as soon as possible after" those meetings, the expectation being that the task would take the secretary "a few days". There was thus an indication that the proffered particulars would be forthcoming within, say, two to three weeks. 10 The plaintiff wrote on the same day saying that this was not acceptable. He referred to his statutory rights. He said that the proposed timing would mean that he was not in a position "to address any shareholder query at the annual general meeting". 11 A board meeting was held on 24 October 2006. It dealt with certain contentious matters of concern among directors. It also approved a "protocol" for the provision of company information to directors. This involved written requests being put to the chief executive. 12 Correspondence involving solicitors took place from 24 October 2006. 13 The plaintiff wrote to the company on 27 October 2006 saying that he was "increasingly suspicious that there may have been misuse of company funds" and that he required "immediate access to all company documents to determine if my suspicions have merit". On this occasion, the letter was addressed to the chief executive. This was consistent with the then recently adopted "protocol". On 6 November 2006, the plaintiff's solicitor alleged that the plaintiff had been defamed by the company's chairman and threatened proceedings. 14 By letter dated 15 November 2006, the plaintiff renewed his demand for access to company records. In the meantime, he had, on 7 November 2006, commenced these proceedings. 15 On 28 November 2006, the defendant sent the plaintiff information extracted by the company secretary in accordance with the procedure outlined in the letter of 19 October 2006. This was in the form of copies of ledger accounts or parts of them. 16 On 7 December 2006, counsel for the parties asked that the court note their agreement that the defendant would, by 12 December 2006, produce copies of invoices and vouchers supporting the ledger entries accompanying the letter of 28 November 2006. It was ordered, by consent, that the proceedings stand over to 13 December 2006 "for the plaintiff to apply for any further order for access to the defendant's financial records of payments to or on behalf of the other non-executive directors". On 13 December 2006, as I have already stated, the court noted the agreement of the parties which, subject to the possible exercise of liberty to apply, resolved the application. There was no occasion for the liberty to be exercised. 17 It is neither possible nor appropriate to attempt to come to any conclusion about the merits of this case. But certain matters are reasonably clear: the plaintiff, as a director, had a right to inspect company documents for the purpose of performing his functions; the other directors apparently had a suspicion that his desire to exercise the right was motivated by improper considerations; on 19 October 2006, the chairman of the defendant indicated that the secretary would be instructed to give the plaintiff certain details from company records and that these should be available in two to three weeks (say, by Thursday 9 November 2006); on 24 October 2006, the board adopted a "protocol" for handling directors' requests for access to company information; on 27 October 2006, the plaintiff renewed his request, addressing it to the chief executive, consistently with the "protocol"; on 28 November 2006, the defendant gave information as foreshadowed on 19 October 2006, albeit about three weeks later than indicated; and the information so given formed a basis on which the parties eventually settled. 18 It is to be noted that the defendant, from 19 October 2006 (and in light of the "protocol" of 24 October 2006), was willing to give the plaintiff the information volunteered on 19 October 2006, being, as I have said, information that formed the basis for the eventual settlement. That indication of willingness had not been withdrawn when the plaintiff commenced proceedings on 7 November 2007. There is some validity to the defendant's criticism of the plaintiff, that is, that he should have allowed the processes indicated on 19 and 24 October 2006 to play themselves out: after all, his professed concerns related to the past rather than something he considered pending, so there can hardly have been extreme urgency. Against that, it might be said that the defendant was slow in following through. But the speed with which things were done (or not done) must be judged in the context of acrimony, accusations, threats of defamation proceedings and general tension and disharmony in which the parties were operating. 19 My conclusion is that there cannot be sheeted home to either side any unreasonableness in and about the proceedings relevant to the costs question now before me. 20 There will accordingly be no order as to costs, to the intent that each party will bear his or its costs. In addition, the proceedings are, by consent, dismissed. **********

Gray v Sirtex Medical Ltd

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