Solicitors:
Matthews Dooley & Gibson (Plaintiff)
Frank Law (Second and Third Defendants)
File Number(s): 2018/393120
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Judgment - (revised 25 november 2019)
By Originating Process filed on 21 December 2018, the Plaintiff, Mr Oreste Bercich ("Oreste"), sought orders under ss 233, 290 and 461 of the Corporations Act 2001 (Cth), initially for the purchase of his shares in the First Defendant, Riverside Spares Pty Ltd ("Company"), or alternatively that the Company be wound up under s 461(1)(k) of the Corporations Act, which provides that the Court may wind up a company if it is of the opinion that it is just and equitable that it be wound up.
Hooke v Bux Global Ltd [2019] NSWSC 1900 | Case summary | Zoe
The proceedings subsequently continued on pleadings and, by a Statement of Claim filed on 11 April 2019, Oreste made a range of allegations in respect of the conduct of the affairs of the Company, including, in particular, by Mr Giovanni Bercich ("Giovanni"). By paragraph 26 and following of that Statement of Claim, Oreste alleged that Giovanni had acquired control of the financial affairs and records of the Company and another entity, A Twins Spare Parts Pty Ltd ("A Twins") (which has subsequently become the subject of other proceedings) and had improperly taken over management of the companies. Oreste contended that he left his employment with A Twins in about 2017, having been excluded from the management of the companies, and that Giovanni had made decisions in relation to the companies on his own, or in consultation with other persons, to the exclusion of Oreste. Paragraph 34 in turn alleged oppression, in the sense that the conduct of the Company's affairs was contrary to the interests of the members as a whole, by reason of certain matters. Paragraph 36 alleged specific acts or omissions which were contrary to the interests of the members as a whole. Paragraph 38 sought the winding up of the Company on the basis of the collapse of confidence between members, within a quasi-partnership setting, and pleaded Oreste's exclusion from the operation and affairs of the Company, his having left employment with A Twins by virtue of that exclusion, and several other matters.
By their Defence filed on 13 May 2019, the Second and Third Defendants, including Giovanni, largely denied the relevant allegations, including the allegation that the Company should be wound up on the just and equitable ground.
Subsequently, on 9 August 2019, Oreste commenced a further set of proceedings in respect of A Twins, which appears to include a series of overlapping allegations, in respect of the affairs of that company.
It appears that, for some time, the parties have been negotiating, without success, a process for the winding up of the Company, and there has been disagreement between them as to the manner in which that could be implemented, and whether it should occur by a members' voluntary winding up or by a Court ordered winding up. Ultimately, the parties reached agreement that there should be a winding up by the Court and, on 18 November 2019, I noted their agreement that the relationship between members of the Company had irretrievably broken down and ordered that the Company be wound up under s 461(1)(k) of the Corporations Act on that basis.
Oreste now seeks an order for his costs of the proceedings, contending that the ordinary order for costs of a winding up under s 466(2) of the Act should be qualified so as to avoid the costs of the proceedings being shared by all of the persons interested in the Company. Oreste relies on the affidavit of his solicitor, Mr Ford, dated 20 November 2019 in that respect, which was also directed to supporting a lump sum costs application which has, sensibly, not been pressed, where it appears that a number of the costs that might be the subject of a claim for costs have not yet been invoiced or paid and could not presently be the subject of a costs order. That affidavit exhibits correspondence, and further correspondence was tendered as a separate exhibit, relating to the discussions between the parties in respect of the winding up, and the concerns raised by Oreste in respect of the conduct of the Company's management. I note that evidence was also led of an invoice rendered by Mr Gordon Salier, solicitor, in respect of his appointment as tutor for the late Nancy Bercich, which was a recent development in the proceedings, ultimately superseded by Ms Bercich's death. It is common ground between the parties that Mr Salier's costs should be paid as costs in the winding up.
The Defendants in turn rely on specific paragraphs of Giovanni's affidavit dated 27 September 2019, including evidence led as to the nature of the Company's business, the circumstances in which a property owned by the Company at Chipping Norton was leased to a third party, and the manner in which the lease proceeds have been dealt with. I have been informed, from the bar table, that there is a dispute as to that matter. The Defendants in turn tender further correspondence between the solicitors. They also tender a paragraph from the affidavit of Ms Mira Bercich dated 12 April 2019, which indicates her support for Oreste's application for a winding up of the Company, so that she could receive her entitlements to the surplus assets of the Company upon a winding up.
Turning now to Oreste's submissions, Mr Stewart, who appears for him, refers to the history of the proceedings and to the contest between Oreste, on the one hand, and the Defendants on the other as to his claims, and as to whether the orders sought, which included but were not limited to a winding up order, should be made. Mr Stewart fairly recognised that s 466(2) of the Corporations Act provides that a liquidator must, unless the Court orders otherwise, reimburse an applicant for the taxed costs incurred by the applicant in any such proceedings out of the company's property. Mr Stewart submits that the Court should here otherwise order, on the basis that the orders now made amount to a capitulation, so far as the winding up order which was one of the orders sought by Oreste, has ultimately been accepted by the Second and Third Defendants. Mr Stewart draws attention to the decision of Colvin J in Hooke v Bux Global Ltd (No 8) [2019] FCA 671, which addressed the circumstances in which a different costs order could be made, having regard to the effect of an order under s 466 of the Act, including with respect to the priorities applicable under s 556(1)(b) of the Act.
It seems to me that there are difficulties, here, in characterising the result as a capitulation, first, because Oreste had sought a range of relief, including a buyout of his shares in the Company, as well as a winding up and, second, because he had sought that relief on a series of bases, including oppression, and a winding up order has only been made on the basis of a fact now agreed between the parties that the relationship between them has broken down. The Court has made no findings as to that matter on the merits, and it is of course at least possible, as Mr Gandar (who appears for the Second and Third Defendants) contends, that the breakdown of that relationship would have been exacerbated by the recent commencement of further proceedings in respect of A Twins, although I accept that the allegations that were previously made in the proceedings were hardly indicative of a productive relationship between the parties. Mr Stewart also submits that it would be inappropriate, in the relevant circumstances, that the Court make an order under s 466(2) of the Act, where that would have the result that all parties would bear a share of Oreste's costs of the proceedings, rather than the Defendants doing so.
Mr Gandar puts a primary position that no order as to costs should be made, with the intent that the parties bear their own costs of the proceedings. In the alternative, he submits that Oreste's assessed costs of the proceedings should be paid out of the Company's assets in accordance with s 466(2) of the Act. He refers to the connection between these proceedings and the recently commenced proceedings concerning A Twins and emphasises that there has been no hearing on the merits in either matter, and that the Court has not made a merits determination which would underpin a costs order in either proceedings. He refers to the well-known principle in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 that the Court will not ordinarily make an order as to the costs of the proceedings in that circumstance, at least if it appears that both parties acted reasonably in commencing and defending the proceedings. Mr Gandar submits, and I accept, that it will be rarely appropriate for a Court to determine for itself the merits, where it does not have the advantage of doing so on a hearing on the merits. Mr Gandar also refers to my decision in Re HCafe Chatswood Pty Ltd [2018] NSWSC 362, which addressed some of the same issues in a similar context to this case.
It seems to me that, here, the Court could not make, and should not make, the primary order sought by Oreste in the relevant circumstances. I accept that the Court has power to make such an order, arising from the qualification in s 466(2) of the Act, and I recognise the matters noted in Hooke v Bux Global Ltd (No 8) above in respect of the making of such an order. However, here, it does not seem to me that the Court could determine the correctness of the bulk of the matters alleged by Oreste, including the allegations of oppression made, without a hearing on the merits. It can proceed, as it has, on the basis that the relationship between the parties has broken down, because that matter has been agreed between the parties, but it cannot make any assessment as to the matters that led to that breakdown, or indeed, as to whether that breakdown existed to an extent that would have been sufficient to support a winding up order, prior to the recent developments in respect of the A Twins proceedings.
Nor can the Court accept the submissions put by Mr Stewart, that it was unreasonable for the Defendants not previously to accede to a winding up order, without engaging in a collateral inquiry, not raised by the pleadings, as to the reasonableness or unreasonableness of the positions taken by the parties in extended correspondence, addressed to matters such as their concerns as to the potential tax implications of a winding up, and how that winding up would be best implemented to minimise any tax disadvantages.
It seems to me that, here, all parties should bear a share of the costs of the winding up, where all will benefit from it, and where the Court cannot, as I have noted above, reach findings as to any degree of fault on any party in respect of the winding up, where there has been no hearing on the merits that will support such findings. For these reasons, I am satisfied that the proper order is neither the order sought by the Plaintiff that the Defendants pay the costs of the proceedings, nor the order sought by the Defendants that there be no costs of the proceedings, where that would involve a determination adverse to the Plaintiff that is also not supported by evidence, but instead the usual order that provides for costs under s 466(2) of the Act. I note that it is common ground that the costs of Mr Salier should be treated on that basis in any event. I am inclined to think that the result today has been in the nature of a draw, where neither party succeeded in its primary position, and that there should therefore be no order for the costs of today. Counsel did not seek to be heard in that regard. I therefore make the following orders:
The Plaintiff's costs of the proceedings, as agreed or as assessed, and the costs of Mr Salier in acting as tutor quantified in the sum of $2,275, be paid as costs of the winding up pursuant to s 466(2) of the Corporations Act.
There be no order as to the costs of the costs application today.
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Decision last updated: 30 December 2019