Did the non-parties have an "active" role in the litigation?
29 The plaintiff challenges the proposition that Adaman or Habrok Mining were relevantly involved in controlling the proceedings or that there was any connection between Adaman or Habrok Mining and the litigation to justify a non-party costs order. I should say at the outset that I disagree.
30 The plaintiff says that the question of whether a non-party had an active role in the litigation can also be phrased in terms of whether the non-party was the "real party" to the litigation in critical and important respects regarding the control of the litigation. It is then said that a real, direct and material connection with the principal litigation must be established such that the non-party can be described as a "real party" to the litigation.
31 The plaintiff says that the connection and control must also be material to the issue of costs. It says that if costs would have been incurred without the non-party's involvement, then the non-party should not be made liable for those costs. In relation to the causal connection between the conduct of the non-party and costs being incurred, it was pointed out that Gobbo J remarked in Bischof v Adams [1992] 2 VR 198 at 204 and 205:
The review of the authorities provides only limited guidance as to the approach to exercise of discretion in a case like the present which does not fit within prior categories or decisions. It can, however, be said in the light of the dicta in the Burns Philp Case that there is an obligation to find a connection between the non party and the proceedings. Given that there must at least be a connection between the non party and the proceedings, what form must this connection take?
It is not practicable to lay down a set of parameters in advance for there may be cases where the interests of justice support an order for costs even though the connection is slender. Thus if a witness deliberately refuses to answer to a subpoena and thereby causes the case to be adjourned and so increases costs to the parties, I would have thought that it was very much arguable that he should bear these extra costs. There would seem to be no connection in the ordinary sense of that word between that witness and the proceedings, beyond the fact that he was a potential witness. It may be said, however, that there is a causal connection between the non party and the incurring of the costs, a matter that bears directly on the justice of whether he should be made to pay costs that he has caused to be incurred.
Again, there may be cases where the connection is significant but not material to the issue of costs. Thus a person may benefit greatly from a particular proceeding but may not have any real part in supporting the proceeding.
The most convenient course is, in my view, to look at both factors in considering the connection between the proceedings and the non party, namely, the connection between the non party and the proceedings and secondly, the causal connection between the non party and the costs.
I have concluded that, without limiting myself to these two matters, I should take both factors into account in any exercise of discretion. The connection must be real and direct and it must be material to the issue of costs. The mere fact that a person may benefit from the litigation will not, without more, suffice.
32 It is said that typical involvement in the conduct of litigation, such as swearing affidavits and instructing counsel, without more, is insufficient to invoke the jurisdiction to award a non-party costs order.
33 Further, it is said that there is no evidence of, or contention that, Adaman or Habrok Mining acted unreasonably or improperly or that there has been some form of abuse of the corporate form.
34 Further, it is said that merely being a shareholder (or the sole shareholder) is not enough to justify a non-party costs order against a parent company. Further, even if the parent company advances funds to a subsidiary company to finance the pursuit of the litigation, this is also insufficient (without more) to justify a non-party costs order.
35 Further, it is said that even if the proceedings were brought for Adaman's and Habrok Mining's financial benefit, that is not enough to justify a non-party costs order.
36 Moreover, it is said that Adaman only had an indirect interest in the plaintiff succeeding in the proceedings arising from its shareholding in the plaintiff. It is said that any interest that Adaman had in the litigation beyond being a shareholder of the plaintiff was several steps removed from the relief sought in the proceeding.
37 Further, reference was made to FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340, where Basten JA, with whom Beazley JA and Giles JJA agreed, stated at [206]:
… it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the "real party" to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case.
38 The plaintiff says that in this context, an interest in the litigation requires something more than being a shareholder, even when proceedings are being run solely for the benefit of shareholders of a company. Rather, for this factor to be satisfied, it is said that the non-party must possess a special interest or stand to gain a personal benefit from the litigation. It is said that the requisite special interest or derivation of personal benefit from the proceedings (beyond a dividend (if any)) is absent in this case.
39 I do not accept these submissions. They have an air of unreality to them.
40 I reject the suggestion that Adaman and Habrok Mining did not play an active role in the litigation, and that Adaman only had an indirect interest in the plaintiff succeeding.
41 Clearly, this proceeding involved strategic commercial litigation instituted by an entity specifically incorporated by Habrok Mining for the purpose of advancing claims such as to provide Adaman and/or Habrok Mining with the opportunity to acquire the defendants' assets including the Dalgaranga gold mine.
42 The acquisition of the Dalgaranga gold mine was commercially advantageous to Adaman. Adaman owns a gold mine known as the "Snakewell Mine" which apparently holds materially higher-grade ore than the Dalgaranga mine, and is closer to the Dalgaranga processing plant than Adaman's existing processing plant located at Adaman's Kirkalocka mine and processing site. The Snakewell Mine's proximity to the Dalgaranga mine meant that Adaman could reduce its operating costs and realise cost synergies by acquiring the Dalgaranga mine. As Mr Raftery deposed:
…If Habrok acquired GCY Group's assets, the ore from the Snakewell mine could be processed at the Dalgaranga processing mill creating efficiencies in reduced road haulage costs. Given these synergies, Habrok, a subsidiary of Adaman, would be willing to pay a competitive price for GCY Group's assets.
43 More generally, in my view the necessary connection justifying a non-party costs order is provided by some broader matters.
44 In May 2020, the plaintiff was incorporated as a "special purpose vehicle" for the sole purpose of commencing these proceedings and acquiring the Gascoyne Group's assets.
45 Further, at the commencement of the proceedings, the plaintiff was wholly owned by Habrok Mining. Moreover, from 2 September 2020, Adaman became the sole shareholder of the plaintiff.
46 There is another matter. In terms of the plaintiff's witnesses before me the following can be noted. Mr Raftery was a director of the plaintiff, Adaman, Habrok Mining, and is the Managing Director of Remagen Capital. A fund managed by Remagen Capital holds a 20% interest in Adaman. Mr Rowsthorn was a director and the Chairman of Adaman. Mr Gary Ireson was a director of Adaman and is Adaman's Corporate Development Officer.
47 There is a further matter to note. On 24 June 2020, Blackrock executed a terms sheet in favour of Adaman, which described the purpose of the funding as follows:
To fund (a) the purchase of all the senior secured debt in Gascoyne Resources Limited (the "Senior Bank Debt") and (b) costs and fees payable to the Lenders. The total cost of acquiring and restructuring Gascoyne Resources Limited via the Senior Bank Debt expect be around A$90,000,000, where Remagen Capital will provide this shortfall amount of A$20,000,000.
Thereafter it is the intention of the Group and the Lenders to restructure Gascoyne Resources Limited whereby (a) the owner of the assets will become the Borrower and (b) Remagen Capital will convert their A$20,000,000 loan to equity in the Parent.
48 The terms sheet defined "Group" as "the Parent and each of its subsidiaries from time to time", "Parent" as Adaman, and "Borrower" as an Adaman SPV wholly owned by Adaman.
49 Moreover as I have noted at the outset, Mr Raftery gave evidence that Habrok Mining and Adaman stood behind the plaintiff and would pay the costs of these proceedings. Further, Mr Raftery's evidence is also important in relation to the exercise of discretion. His evidence was given to bolster the financial credibility and standing of Adaman and Habrok Mining so as to persuade me of the utility of the orders that the plaintiff was seeking in the litigation.
50 Further, on 17 September 2020 and during the course of the trial, Adaman submitted a written open offer to acquire the Gascoyne Group for $140 million. That written offer was tendered by the plaintiff.
51 All of these matters establish the active role played and interest in the proceedings by the non-parties.
52 Further, as the defendants point out, the present litigation also needs to be seen in the context of earlier events. In late 2019, Adaman submitted two unsuccessful bids for the Gascoyne Group's assets during the sale process that was being conducted by the administrators in parallel with their strategy to recapitalise the Gascoyne Group. In March 2020 Adaman submitted another unsuccessful bid. On the eve of the second creditors' meetings, Habrok Mining submitted a DOCA proposal by which it would acquire the Gascoyne Group's assets which was also unsuccessful. And on 4 August 2020 the plaintiff purchased Orlando Drilling's debt. On the same date, the plaintiff commenced these proceedings.
53 I agree with the defendants that, in the circumstances, the Court's power to make the order has been enlivened and there is a powerful discretionary basis to make such an order.
54 I will make the necessary non-party costs orders.