Mondello v Mondello Farms Pty Ltd

6 The plaintiff was neither a director nor shareholder of the seventh defendant. Nor does he assert that that company is a trustee of one of the relevant trusts. The plaintiff's assertion in his affidavit sworn on 10 February 2012 that he was a director of the seventh defendant was incorrect and the seventh defendant's inclusion as a defendant to the proceeding was a mistake. The plaintiff discontinued his proceeding against it on 19 April 2012. The costs incurred by the seventh defendant must be relatively minimal. The company appears to be a member of the Mondello Group of companies. Although its inclusion as a defendant was a mistake, that mistake was corrected in a timely fashion. In light of these matters and in circumstances where I do not propose to make an order for costs in relation to the proceeding generally, I do not think it appropriate to make a different order in relation to the seventh defendant. 7 The plaintiff put forward correspondence which had passed between his solicitors (Arnold Bloch Leibler) ("ABL") and the solicitors acting for the first defendant (Minter Ellison) ("ME") from 23 September 2011 to the date upon which the proceeding was commenced. It is not necessary for me to go through the details of that correspondence. A summary of the key points will suffice. First, the correspondence contained requests for inspection of books and records by ABL and the assertion and counter-assertion of breaches of legal obligations by both ABL and ME on behalf of their respective clients. The requests for books and records were contained in ABL's letters dated 23 September 2011 and 19 December 2011 and a number of follow-up letters. Secondly, ME did offer to provide access to a limited category of books and records by letter dated 23 November 2011. Thirdly, the allegations by ABL on behalf of the plaintiff were, speaking generally, of oppressive conduct under s 232 of the Corporations Act and unlawful termination of employment. Fourthly, the allegations by ME on behalf of the defendants, again speaking generally, were of various acts by the plaintiff in breach of his duties, including his fiduciary duties, which were designed to damage and did damage the business or which involved taking steps towards establishing a competing business. 8 Before leaving the facts, I should mention one important area of dispute between the parties. In support of his argument for an order for costs in his favour, the plaintiff places considerable emphasis on his requests for books and records before he commenced this proceeding. He submits that the only way he was able to secure the books and records was by commencing the proceeding. Both parties performed an analysis designed to show the proportion between the requested books and records and the books and records produced after the proceeding had been commenced. The defendants' analysis produced a figure of approximately 10 per cent. Whilst he acknowledged a broadening of his request on and after the proceeding was commenced, the plaintiff's analysis produced a much higher figure. It is difficult for me to make a precise finding with respect to this matter. I accept the plaintiff's criticisms of the defendants' analysis and, in particular, the fact that there was an element of double-counting and the fact that any analysis also needs to take into account that it was only after the proceeding was commenced that the defendants advised the plaintiff that certain of the requested books and records did not exist. I find that a not insignificant quantity of books and records were requested before the proceeding was commenced and only provided after the proceeding had been commenced. 9 I turn now to the principal arguments advanced on the plaintiff's application for costs. I start by rejecting two arguments advanced by the plaintiff. 10 The plaintiff submits that I should accede to his application because the defendants did not comply with their obligation under s 37N of the Federal Court of Australia Act 1976 (Cth). Subsection 37N(1) provides as follows: The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose. 11 The overarching purpose is identified in s 37M and requires the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. 12 I do not think that s 37N(1) assists the plaintiff's argument because I think the obligation in subsection 37N(1) relates to the defendants' conduct of the proceeding and not to their conduct before the proceeding was commenced. I see no reason to criticise the defendants' conduct of the proceeding between 13 February 2012 and 13 March 2012. 13 The plaintiff submits that an offer with respect to costs which he made on 4 July 2012 is relevant to his application for costs. By letter from his solicitors of that date he offered to accept 75 per cent of his party and party costs of and incidental to his application. As the plaintiff appeared to concede, that offer cannot have a bearing on costs incurred prior to that date and therefore it can only be relevant to the plaintiff's costs of his written costs submissions. In my opinion, it does not bear on that aspect of the plaintiff's application because it is not known whether the offer he made is equal to, or more favourable than, the order which he now seeks. 14 The plaintiff submits that it was only after he commenced this proceeding that the defendants indicated that they would comply with their obligation to provide access to books and records of the defendants. He does not seek costs beyond the date the defendants indicated their willingness to provide books and records, being 13 March 2012. The defendants seek to meet that submission by contending that to accept that submission would involve the Court in a determination of the merits of the plaintiff's application without a hearing or trial. That was, the defendants contended, impermissible. 15 The defendants referred to the terms of the sections upon which the plaintiff relied in his application. Subsection 247A(1) of the Corporations Act provides as follows: On application by a member of a company or registered managed investment scheme, the Court may make an order: (a) authorising the applicant to inspect the books of the company or scheme; or (b) authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf. The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose. 16 Subsections 198F(1) and (2) of the Corporations Act provide as follows: (1) A director of a company may inspect the books of the company (other than its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. Note: Section 290 gives the director a right of access to financial records. (2) A person who has ceased to be a director of a company may inspect the books of the company (including its financial records) at all reasonable times for the purposes of a legal proceeding: (a) to which the person is a party; or (b) that the person proposes in good faith to bring; or (c) that the person has reason to believe will be brought against them. This right continues for seven years after the person ceased to be a director of the company. 17 The defendants drew my attention to the fact that the plaintiff did not rely on s 290 of the Corporations Act in his originating application. That section is in the following terms: (1) A director of a company, registered scheme or disclosing entity has a right of access to the financial records at all reasonable times. Court order for inspection on director's behalf (2) On application by a director, the Court may authorise a person to inspect the financial records on the director's behalf. (3) A person authorised to inspect records may make copies of the records unless the Court orders otherwise. (4) The Court may make any other orders it considers appropriate, including either or both of the following: (a) an order limiting the use that a person who inspects the records may make of information obtained during the inspection; (b) an order limiting the right of a person who inspects the records to make copies in accordance with subsection (3). 18 Section 84B of the Trustee Act provides as follows: (1) A trustee shall keep such records relating to his administration of the trust property as may be prescribed. Maximum penalty: $500. (2) A trustee shall, at the request of - (a) the Public Trustee; or (b) another trustee of the trust; or (c) a beneficiary under the trust, produce the records kept by the trustee in pursuance of this section for inspection and permit the Public Trustee, the other trustee or the beneficiary (as the case may be) to examine and make copies of those records. Maximum penalty: $500. 19 As I understand the defendants' submission, it is that their conduct was reasonable in the face of various alleged acts of misconduct by the plaintiff as set out in the correspondence between the parties. This led to a submission by the plaintiff that there was no admissible evidence in support of the allegations of misconduct by the plaintiff. The defendants countered by submitting that there was sufficient evidence for the purpose before the Court. 20 The defendants also identified arguments relevant to the merits of the plaintiff's substantive application. First, they submitted that the plaintiff's application under s 247A of the Corporations Act depended on him establishing good faith and a proper purpose and that there was no evidence of those matters. Secondly, they submitted an oppressive conduct application by the plaintiff in his capacity as a member did not engage the provisions of s 198F. Thirdly, they submitted that the plaintiff's rights under s 84B of the Trustee Act are not unconditional and that, in any event, his request for books and records was far broader than the obligation in that section. 21 The defendants referred to authorities which suggested that, absent a hearing on the merits, an order for costs in favour of one party will not ordinarily be made. 22 In Australian Securities Commission v Aust Home Investments Ltd & Ors (1993) 116 ALR 523 at 530, Hill J said: These cases seem to me to support the following propositions being made. (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: Stratford and the SEQEB case. (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. (SEQEB, supra). (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: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371. (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: cf Re Asiatic Electric Co. Pty Ltd. (In liquidation) [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration. In Gribbles Pathology Pty Ltd v Health Insurance Commission & Ors (1997) 80 FCR 284 at 287, Finkelstein J set out the above passage from the reasons for judgment of Hill J in Australian Securities Commission v Home Investments Ltd and then continued: For my own part I should wish to emphasise that in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against the claimant. Likewise if a defence was bound to fail that would be good reason for awarding costs in favour of the claimant. But I venture to suggest that there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party. 23 I do not think the defendants responded to the plaintiff's request for books and records in a timely fashion. Their offer by letter from their solicitors dated 28 November 2011 was insufficient. It is a fair inference that the defendants only responded in a serious fashion to the plaintiff's requests after the proceeding had been commenced. It is a fair conclusion that, had the proceeding been heard, the plaintiff had good prospects of obtaining the orders he sought, including an order that a not insubstantial quantity of requested books and records be made available for inspection. Are these matters enough to support an order for costs in the plaintiff's favour? I acknowledge that in terms of the issues on the substantive application this case appears to be more straightforward than the examples given in the authorities. Nevertheless, the principle referred to by Hill J and Finkelstein J is a salutary one. I must focus on the likely outcome of the plaintiff's application, but only to the extent of considering whether, relevant to this case, the defendants' defence was bound to fail. I cannot exclude the possibility that when all the evidence was in, the plaintiff's substantive application might have failed, or at least failed to an extent that he would not be awarded costs. Not without some hesitation, I refuse the plaintiff's application for costs. There should be no separate order with respect to the plaintiff's application for the costs of his written costs submissions. 24 I will make the following orders: 1. The application be dismissed. 2. There be no order as to the costs of the proceeding. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.