(b) these proceedings have been both commenced and continued in circumstances where Mr Della must have known that he had no chance of success and Mr Della must be presumed to have commenced or continued the defence of the proceedings for some ulterior motive or because of some wilful disregard of known facts or clearly established law: see especially the comments of Woodward J in Re Fountain Selected Meats (1988) 81 ALR 397 at 401.
105 Thirdly, Jankar submits that Mr Della should pay Dellmain's defence costs of these proceedings on the basis that they are essentially a dispute between Jankar and Mr Della. Jankar submits that Mr Della has at all times been in effective control of Dellmain and has used Dellmain for his own purposes while on the other hand preventing the plaintiff from obtaining any benefit from or having any involvement in Dellmain. Jankar contends in these circumstances it would be most unjust if Dellmain's assets were to be reduced by the payment of legal costs in these proceedings. That unfairness, Jankar submits would impact not only on Jankar itself but Dellmain's creditors, since the assets available for distribution among them would be reduced by the costs appropriated from Dellmain's assets by Mr Della, and caused by breaches of duties which he owed not only to Dellmain but because of its financial position also to creditors themselves: Kinsella v Russell Kinsella Pty Limited (1986) 10 ACLR 395 at 401-405.
106 In support of its submissions Jankar invokes ss 232 and 233 Corporations Act 2001 as an analogous a source of power for the Court ordering a director to indemnify the company in respect of any costs it has occurred in circumstances where the facts stipulated in s 461(1)(e) or (f) of the Corporations Act 2001 are established. Section 232 empowers the Court to make an order under s 233 if the conduct of the company's affairs or an actual or proposed act or omission by or on behalf of a company is contrary to the interest of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity. The powers under s 233(1)(j) include the making of orders "requiring a person to do a specified act". Ordering the provision of an indemnity to the company for defence costs falls within those words, as is demonstrated for example by White J's decision in Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2005] NSWSC 495; (2005) 54 ACSR 249.
107 Mr Della's submissions concede that there ought be an order for costs on the ordinary basis against him in respect of the interlocutory process which was active between 4 and 15 December 2008. Mr Della submits that there ought not be any other order for costs against him and that Mr Della should not be required to indemnify Dellmain in respect of costs of the proceedings. In support of these general propositions Mr Della put a number of specific contentions. I deal with these specific contentions in the order in which they were raised. I will then determine each of the three parts of Jankar's costs submissions.
A Hypothetical Action
108 First, Mr Della submits that where there has been no hearing on the merits the Court ought not to try a hypothetical action between the parties solely for the purposes of determining an issue as to costs. It is conceded on behalf of Mr Della that the Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain costs orders in the proceedings in accordance with the principles stated by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin at 642-5.
109 The Court is not trying a "hypothetical action" between the parties. Rather, the Court is determining whether one or other of the parties has acted so unreasonably that the other party should obtain costs orders. This is precisely the task that was said by McHugh J to be permissible in Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin. Mc Hugh J's statement in that case that the "Court cannot try a hypothetical action" is explained by what he next said:
"To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided."
110 The "hypothetical action" to which McHugh J was referring was embarking upon a full trial of the issues with cross-examination on all sides as if there had not been a settlement. His Honour's point was that for the Court to allow that course would negate the costs savings that the parties had secured through their settlement. The Court did not permit such a trial of a "hypothetical action" here. With the active and efficient co-operation of counsel on both sides, most of the available evidentiary material was put before the Court in this case so that the Court could make the assessment of the reasonable or unreasonable actions of the parties which is called for by Re Minister for Immigration and Ethnic Affairs; Ex parte Re Kim Li Qin. The assessment of whether the parties have acted reasonably may be supplemented by a finding as to whether one or other of them might have succeeded in the action. Even that would still not be a trial of a "hypothetical action". Mr Della's first point fails.
Section 233 Corporations Act 2001 Relief
111 Second, Mr Della submitted that no relief was sought by the plaintiff under ss 232 or 233 of the Corporations Act 2001 and so the particular costs orders claimed by Jankar grounded on those sections, cannot be made.
112 Jankar's summons does not contain any prayer for relief under s 233 of the Corporations Act 2001. Jankar's principal closing submissions appeared as though it might be based upon that provision. No application for amendment of the Further Amended Originating Process was made expressly to claim relief under s 233 Corporations Act 2001. The mere reference to s 233 in closing submissions is not sufficient to enable the Court to grant relief on that basis.
113 The language of Jankar's closing submissions anticipates the absence of a claim for relief under s233 Corporations Act 2001. Jankar submitted:
"Sections 233 and 233 of the Corporations Act provide to the effect that, if the facts stipulated in section 461(e) or (f) are established, then an order can be made requiring a director to indemnify the company in respect of any costs it has incurred: Cassegrain & Anor v CTK Engineering Pty Limited & Anor [2005] NSWSC 495; (2005) 54 ACSR 249."
114 In reply Mr Della pointed to the absence of any claim for relief under s 233. This was a matter of some procedural importance. Authorities in the area such as Cassegrain at [90]-[100] ground the making of such indemnity orders at least in part in s 233(1)(j). Given that Jankar's submissions appeared perhaps to assume that relief under s 233 was available and given that the state of the pleadings was not dealt with in Jankar's written submissions I called for supplementary submissions as to whether such an indemnity order was available either under s 233 or s 1335(2) Corporations Act 2001. The results of those supplementary submissions was a concession by Jankar that s 233 was only being invoked by analogy and that the claimed indemnity to Dellmain for its defence costs was grounded on s 1335(2) Corporations Act 2001.
Contravention of Section 286 Corporations Act 2001
115 Third, Mr Della takes issue with Jankar's case that there has been contravention of s 286 Corporations Act 2001 due to the state of the financial records of Dellmain. Mr Della submits that it has not been shown that there had ever been an obligation to prepare a financial report and a directors report in relation to the first defendant as would be required by ss 292(2), 293, and 294 of the Corporations Act 2001. Mr Della further submits that documents were produced 8 December 2008 pursuant to an order for production when the proceedings were originally commenced. Those documents are not in evidence and Mr Della submits that there is insufficient evidence to satisfy the Court that there has been a contravention of s 286.
116 Some precision is necessary when analysing what documents have been produced in these proceedings. Two groups of documents have been produced by or on behalf of Mr Della to Jankar. The first group is the financial material provided by Creagh and Creagh under cover of their letter of 10 December 2009 and exhibited to Mr Currie's affidavit of 5 February 2009. This material was produced in response to a letter of request from Colin Biggers and Paisley of 9 December 2009. The contents of those documents were fully analysed by Mr Currie in paragraph 11 of his affidavit of 5 February 2009. The main features of that analysis are set out above under the heading Background, above. That analysis and Colin Biggers and Paisley's request show that Jankar was not provided with any financial accounts of Dellmain for the two then complete financial years ending 30 June 2007 and 30 June 2008. Nor did Jankar have nor was it provided with any of Dellmain's management accounts for any period after 1 May 2007. These were important documents to enable the directors of Dellmain to understand the financial position of Dellmain in late 2008 and early 2009, when Mr Currie was beginning to suspect that Dellmain was probably insolvent.
117 A description of the documents that were produced has been given by Mr Currie which has not been objected to and is in evidence. Although this description, is only secondary evidence of the documents, it is a description upon which the Court can act. It does enable a clear picture to be obtained of what was and what was not included among them. It is clear from this description that the documents produced did not contain any recent financial statements for Dellmain.
118 The second group of documents were produced to Court in the course of the interlocutory proceedings on 8 December 2009 in response to an Order for Production made when the proceedings were commenced. It is correct, as Mr Della submits, that these documents are not in evidence. Nor is any analysis of them offered in Jankar's evidence. However, the fact that they are not in evidence does not limit the Court's capacity to draw inferences about what they do not contain, when the full circumstances are considered.
119 The Court can infer with greater confidence that recent financial statements for Dellmain were not created at any time in the course of Dellmain's operations, because they have not been produced and tendered on behalf of any of the defendants. The veritable stream of correspondence from Mr Currie asking for these documents both before and after these proceedings were commenced, the issue of the Order for Production itself and the allegations in the proceedings (in paragraphs 18A and 18B of the Further Amended Statement of Claim) of specific failures to keep financial records, all placed Mr Della on notice that if such documents existed, he should produce them. Despite the prominence of this issue and despite Mr Della's subsisting responsibilities as a director to cause such records to be kept, these financial records have not been produced by the defendant among the first group of documents or tendered by Mr Della out of the second group. On the basis of this evidence of non production of these documents after repeated demands the Court may infer that they do not exist. The missing financial statements wholly relate to a period when Dellmain was controlled by Mr Della alone. He is the best person to explain their absence. He has chosen not to do so.
120 There is prima facie evidence of a contravention of s 268 Corporations Act 2001. It is not necessary though for Jankar to establish such a contravention in order for a winding up order to be made under s 461(1)(e), (f), or (k) Corporations Act 2001. I find on the evidence that Dellmain has no financial statements in existence for the financial years ending 30 June 2007 and 30 June 2008 and no management accounts for any period after 1 May 2007. This underlying fact is relevant to the grant of relief under s 461(1)(e), (f), or (k) Corporations Act 2001 in the various ways described under the heading Reasons for the Grant of Relief on the Just and Equitable Ground.
121 In answer to Jankar's claim of a s 286 contravention, Mr Della submits that Jankar has not shown that Dellmain was obliged to prepare an annual financial report and a director's report for the 2007 and 2008 financial years by reason of the operation of ss 292(2), 293 and 294 Corporations Act 2001. This does not engage the thrust of Jankar's case that Dellmain's 2007 and 2008 financial statements and post May 2007 management accounts were never created, a fact that tends to show a company in serious internal disarray. If Dellmain's records were in a sufficiently satisfactory state for it to be shown that no s 293 shareholder direction and no s 294 ASIC direction had been made in respect of the Dellmain for either of those two financial years, then it could be expected that those records could have been put before the Court by the defendants, either in support of this submission or to answer the fundamental inference of mismanagement that arises from their non production. Moreover, the submission is disconnected with the real facts of this case. It is ambitious of Mr Della to complain of the absence of a s 293 shareholders direction requiring preparation of the relevant financial statements and directors reports. One of Jankar's fundamental allegations in the proceedings, which I have found to be made out, is that Mr Della and Nature Meat had failed to issue shares in Dellmain to Jankar from May 2007, thereby denying Jankar the capacity to requisition a s 293 direction as members.
Other Legal Remedies Available to Mr Currie
122 Fourth, Mr Della submits that Mr Currie was entitled to exercise all the powers of a director to obtain access to records after he became a director and following the orders made on 8 December 2008, such as the powers conferred upon him under ss 198F and 247F Corporations Act 2001. Mr Della submits that no relief was sought by Mr Currie under the powers provided for under the Corporations Act 2001 in default of him being satisfied he was gaining access to appropriate financial records.
123 The difficulty with this argument has been identified in Jankar's submissions in reply. It is a remarkable submission. Mr Della contends that one director is entitled to say to a second director that if the latter wants access to the parties' records then the second director should bring proceedings for relief under ss 198F and 247F Corporations Act 2001 to obtain them. Sensible corporate life could not proceed if company affairs were run this way. Morever, much of Mr Currie's conduct should be analysed as a genuine attempt to deploy his s 198F rights, the exercise of which was being obstructed by Mr Della.
No Obligation to Issue Shares in Dellmain
124 Fifth, Mr Della submits that he was under the mistaken impression that Jankar and Mr Currie were content to defer the actual issue of shares in Dellmain and to defer the notification of ASIC about the issue of shares, until after the shareholders agreement had been finalised. Mr Della refers to the letter from Creagh and Creagh to Colin Biggers and Paisley of 27 November 2008 which makes this assertion. Mr Della submits that the proceedings were commenced on 3 December 2008 immediately following the conference convened for the purposes of discussing relevant matters including the appointment of a provisional liquidator, at which conference this wrong impression was set right.
125 The first problem with this argument is that it must have been obvious to Mr Della that Mr Currie wanted the shares issued to him before any shareholders agreement was signed. That is what the agreements between the parties provided for and what Mr Currie's correspondence by the second half of 2008 was saying. There was no reason for Mr Della not to accept this at face value.
126 The original Direction and Authority signed in May 2007 between Mr Della and Mr Currie contemplated the issue of an undetermined number of shares when a Shareholders Agreement was signed. The arrangements between them became more concrete by September of the same year. Creagh and Creagh's email of 25 September 2007 records an agreement to "arrange to transfer/issue shares representing 50% of Dellmain's issued capital". This promise was only conditional on Mr Currie increasing his investment to $1,000,000 which he did. It was not qualified by any other future event, such as the execution of a Shareholders Agreement.
127 Mr Della's "mistaken impression" first asserted in Creagh and Creagh's letter of 27 November 2008, that Mr Currie "was content for [the issue of shares] to occur once the Shareholder Agreement had been finalised" is negatived by the agreement made on 25 September 2007. There is nothing in Mr Currie's affidavit evidence that lends support to the idea that Mr Della had any basis for holding such a mistaken impression. In his own email of 3 October 2007 Mr Della concedes Jankar's entitlement to 50% of the share capital of Dellmain once the balance of $700,000 was paid. It is difficult to explain Mr Della's acquiescence in Mr Currie's requests for information thereafter other than on the basis that Mr Della understood Mr Currie was making those requests on the basis of an expectation that shares representing 50% of Dellmain's would soon be issued to him. Mr Della's asserted negotiations with Malaysian purchasers of Jankar's shares are also barely compatible with this "mistaken impression".
128 The real explanation for Mr Della's so called "mistaken impression" is to be gained from Mr Della's email of 12 February 2009 in which he says to Mr Currie:
"3. It is because you did not sign the shareholders agreement that you were not on the register not because of court orders. This has been said to you many times. If you did not agree with the agreement, (and you amended it as well) all you had to do is say so and not pay anything. The matter would not have proceeded So what was your game?"
129 Mr Della was unwilling to issue the shares until Mr Currie signed the version of the Shareholders Agreement that he, Mr Della, wanted Mr Currie to sign. However, Mr Della had no basis for a belief at any time after 25 September 2007 that Mr Currie was of the same view about his entitlements to the issue of shares in Dellmain.
Indemnity Costs
130 Sixth, Mr Della contends that if an order for costs is made against him that it should not be made on the indemnity basis. This submission is dealt with below when Jankar's claim for indemnity costs is determined.
Costs Against Mr Della
131 The Third Defendant accepts that there ought be a costs order against him on the usual basis in respect of the Interlocutory Process. This concession would cover most of the costs incurred by Jankar between the commencement of the proceedings on 4 December 2008 and the dismissal of the balance of the Interlocutory Process on 15 December 2008. Jankar seeks a wider order for costs against Mr Della in respect of the remainder of the proceedings. The exercise of the Court's discretion to make such an order when the defendants have consented to a grant of final relief or have otherwise agreed on the outcome of the proceedings is informed by principles stated in two leading cases. The first is a statement by Hill J in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 at 530:
"(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 …