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[2011] FCA 166
Federal Court of Australia
2011-03-02
The P, Gordon J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 The first applicant, Harding Investments Pty Ltd (as trustee of the S & H Harding Family Trust) (Harding Investments), is one of three shareholders in Lotic Pty Ltd (Lotic). The second applicant, Steven John Harding (Mr Harding) was an employee and director of Lotic. 2 The proceedings were commenced by the applicants on 8 September 2010 in the Fast Track List. There were three classes of claims: 1. a minority shareholders action commenced by Harding Investments against the other two shareholders in Lotic, the first and third respondents; 2. alternatively to (1), an action against Lotic (the fifth respondent at the time) for specific performance of a Shareholders Agreement dated 27 February 2006; 3. alternatively to (1), an application under s 233(1) of the Corporations Act 2001 (Cth) (the Act) seeking leave for Harding Investments to institute proceedings in its own name and on behalf of Lotic against the second and fourth respondents, Mr Donald Stewart Gordon and Mr Paul Robert Dick - the directors of Lotic. 3 On 27 October 2010, the parties attended mediation. It was unsuccessful. On 8 November 2010, Lotic was placed into administration. 4 The procedural history of this matter, since the mediation, includes: 1. On 15 November 2010, the applicants issued a notice of motion seeking to remove Lotic from administration. The notice of motion was part-heard on 22 November 2010 and adjourned for settlement discussions to take place; 2. On 1 December 2010, the matter returned to Court. The applicants' Counsel informed the Court that the parties believed that the matter was settled. However, a settlement did not eventuate and the proceedings were removed from the Fast Track List; 3. On 16 December 2010, the parties consented to the proceedings against Lotic (the fifth respondent at the time) being dismissed with no order as to costs and to orders for the conduct of the proceeding in respect of the remaining parties; 4. On 2 February 2011, leave was granted for the applicants to amend their Statement of Facts, Issues and Contentions and further directions were made to prepare the substantive hearing for trial in May 2011. The parties estimate that the trial will last approximately two and a half to three days; 5. On 3 February 2011, the applicants filed an Amended Statement of Facts, Issues and Contention that, inter alia, sought to continue the minority shareholder action and sought relief under the Act that: 1. the first and third respondents purchase the shares held in Lotic from Harding Investments; or 2. Harding Investments purchase the shares held in Lotic by the first and third respondents. 5 By notice of motion filed 22 February 2011, the respondents sought security for the costs of the proceeding in the amount of $100,000 and an order that if security is not provided, the proceeding be stayed. The respondents further sought to have the proceedings dismissed under O 28 r 5 of the Federal Court Rules 1979 (Cth) if the security is not provided within 30 days of 1 March 2011. That application is opposed by the applicants. 6 The respondents allege that Harding Investments has insufficient assets to meet a costs order. In relation to the net assets of Harding Investments, the respondents state: 1. searches of the Victorian Land Titles Register did not disclose any property registered in the name of Harding Investments; 2. so far as the respondents are aware, the only asset owned by Harding Investments is its shareholding in Lotic and the respondents allege that does not have any present value; and 3. Harding Investments has an outstanding shareholder's loan account balance in Lotic's accounts of approximately $380,000. 7 In relation to the financial position of Mr Harding, the respondents submit there were several entries in the New South Wales and Victorian Land Titles Register under the name of Steven John Harding and two appear to be interests held by Mr Harding. However, each entry is encumbered by at least one mortgage. 8 Finally, the respondents allege that Harding Investments is not suing for its own benefit but for the benefit of Mr Harding. 9 As previously mentioned, the applicants oppose the application on three grounds. First, that the application for security is too late. Next, when taken in conjunction with other demands by the respondents and by Lotic (which is under the control of the respondents) and the timing of those demands, the application should be viewed either as a deliberate attempt to avoid the trial proceeding as scheduled, or to interfere with the applicants' preparation for the trial and, finally, the amount sought does not reflect the likely costs of a three day trial.
relevant principles 10 The respondents' application was made pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and O 28 of the Federal Court Rules. 11 The respondents submit, and I accept, the Court has a broad and unfettered discretion whether or not to order security: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 4. The respondents referred to the decision of Hill J in Equity Access Ltd v Westpac Banking Corporation [1989] ATPR 40-972 at 9-10 where his Honour listed a number of factors relevant to the exercise of the Court's discretion to award security for costs. 12 It is against this legal and factual context that I consider the current application. 13 I accept that there was some delay in the respondents' application. However, "there are cases where delay will weigh more heavily with the court than it does in other cases": Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71 per Lehane J. As is evident from the procedural history of this case, until recently there were real prospects of resolving these proceeding without a trial. The applicants' Amended Statement of Facts, Issues and Contention was filed on 3 February 2011. However, the respondents sought security for costs by notice of motion filed on 22 February 2011, after the directions hearing on 2 February when it was accepted by all parties that there were no interlocutory issues. The proceedings are set down for hearing on 17, 18 and 19 May 2011. 14 Further, the applicants have not sought to dispute the contention that that they will be unable to meet a costs order. 15 That leaves the third ground of objection - that the fact and timing of the application should be viewed as a deliberate attempt to avoid or frustrate the trial of the proceedings. The applicants point to the fact that they have incurred significant legal costs in relation to a dispute arising from business arrangements entered into in February 2006 and that only recently Lotic (in administration) recently made a demand against Harding Investments to seek to recover an alleged loan account of $380,000. It must be recalled that the proceedings against Lotic were dismissed by consent with no orders as to costs on 16 December 2010. 16 As noted earlier, a directions hearing was held on 2 February 2011. The only step remaining to be completed is for the respondents to file and serve any affidavits upon which they intend to rely (including any expert evidence) by 1 April 2011. 17 In those circumstances, should the respondents have security for their costs? In my view, it is inappropriate for the applicants to provide security for the respondents' costs. It is simply too late and the timing of the application raises serious questions about the purpose of the application. 18 Further and, in any event, an order for security would be limited to the costs to be incurred up to and including the first day of trial. Orders in respect of past costs would be unacceptably oppressive given the delay: cf Karl Suleman Enterprizes Pty Ltd (in liq) v Pham [2010] NSWSC 886. What then about the future costs? The respondents' submissions described the "prospective costs" as follows: Reviewing Applicants' evidence, preparation of Respondents' Evidence (proofing witnesses, affidavits from Respondents, employees, expert valuer, administrator), briefing and conferences with Counsel, dealings with Applicants generally and regarding Court book, general trial preparation $50,000 Solicitors', Counsel's and expert's fees of a 3 day trial $25,000
19 No evidence was adduced by the respondents seeking to explain or justify the quantum of costs sought. The basis of calculation was not identified: cf Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187. The number of witnesses was not identified. The state of preparation of the affidavits was not explained. No estimate of the valuer's costs was provided. The list goes on. Ordinarily you would expect the party seeking security to provide sworn evidence of these and other matters relevant to the question of the quantum of the costs sought, often through or supported by a costs consultant. In the absence of admissible evidence, it is not possible to properly assess the quantum claimed by the respondents. 20 For those reasons, I would dismiss respondents' notice of motion filed on 22 February 2011 and order the respondents to pay the applicants' costs of the motion, such costs to be taxed in default of agreement. I do not accept the applicants' contention that the costs should be paid on an indemnity basis and ordered against the respondents' solicitors or against a particular member of the respondents' solicitors. The circumstances outlined above do not justify the order sought. I certify that the preceding twenty (20) numbered paragraphs are a true coy of the Reasons for Judgment herein of the Honourable Justice Gordon.
Harding Investments Pty Ltd
PMP Shareholdings Pty Ltd