Plaintiff v Defendant

Ebrahimi v. Westbourne Galleries Ltd [1972] 2 All ER 492

Hazeldene Chicken Farm v. VWA No.2 [2005] VSCA 298; (2005) 13 VR 435

Nolan v. Nolan [2003] VSC 136

PCR Investments Pty Ltd v. National Gold Holdings Ltd [2002] VSC 824

Re A Company [1983] 2 All ER 854

1 Before me today is a continuation of the hearing of the matter in which Dodds-Streeton J gave reasons on 14 May 2007. Dodds-Streeton J did not make any orders as a consequence of those reasons. Her Honour was elevated to the Court of Appeal of the Supreme Court of Victoria before she was able to do so.

2 In her detailed written reasons for judgment, Dodds-Streeton J rejected the plaintiff's claim that he was entitled to relief for oppressive conduct under ss 232 and 233 of the Corporations Act. She did not make a finding on the plaintiff's application that the company be wound up under the just and equitable ground.

3 Dodds-Streeton J was informed that the defendant might buy the plaintiff's shares in the company at valuation in order to avoid a winding up of the company under the just and equitable ground. Accordingly, the parties agreed her Honour should make directions for the valuation of the company which has resulted in a joint report prepared by an expert on behalf of the plaintiff and an expert on behalf of the defendant, which is now part of Exhibit P18.

4 The matter previously came before me on 30 October 2007, where it was submitted that Dodds-Streeton J should make the final orders rather than me. There was some difference of view as to whether or not I could give a ruling on the valuation of the shares. In any event the plaintiff submitted that the final orders should be made by Dodds-Streeton J. On that occasion I asked the parties to make written submissions on that issue and also make written submissions on the final orders that they would be seeking. The parties have done so.

5 I indicated that I would make a decision as to whether or not I would continue to hear the matter or refer it to Dodds-Streeton J. I have considered those submissions. I have been informed by the court and accept that Dodds-Streeton J cannot hear the matter by reason of her duties as a Justice of Appeal and that accordingly, in accordance with s 87(2) of the Constitution Act 1975, I am able to exercise the powers of the court in completing the hearing and determination of the proceeding, which I now do.

6 On the resumption of the hearing I queried the legal basis upon which I could make an order valuing the shares. Under the originating process of 16 November 2004, the plaintiff made an application under ss 232 and 233 of the Corporations Act, which deal with applications alleging oppressive conduct, and also an application under ss 461(1)(f),(g) and (k) of the Corporations Act, which deal with applications to wind up a company.

7 In substance paragraph 1 of the originating process sought a declaration that the company's affairs were being carried out in an oppressive manner. Paragraph 2 sought an order that the defendant acquire the plaintiff's shares in the company at the valuation determined as at 1 October 2004. Paragraph 3 alternatively sought an order pursuant to s 233 or s 461(f), (g) or (k) of the Corporations Act that the company be wound up. Paragraph 4 sought an order that the defendant pay the plaintiff's costs of this proceeding, and paragraph 5, such further other relief as the court sees fit.

8 Mr Randall, counsel for the defendant, submitted that, on the findings made by Dodds-Streeton J, the plaintiff has not established oppression and he therefore seeks an order dismissing the claims for relief in paragraphs 1 and 2. He also submitted that the defendant is entitled to an order dismissing the application in paragraph 3 relying on s 233. I indicated that I was likely to make such orders on the findings of Dodds-Streeton J.

9 That left outstanding the plaintiff's claim that the company be wound up under s 461(1)(f), (g) or (k). Speaking very broadly, para (f) relies upon oppressive conduct and para (g) relies upon acts or omissions which would unfairly prejudice or unfairly discriminate against a member or members of the company. They are now not open to the plaintiff in view of Dodds-Streeton J's findings. As a consequence the only relevant provision relied on by the plaintiff is s 461(1)(k) of the Corporations Act.

10 The defendant does not admit that the plaintiff is entitled to an order that the company be wound up on the just and equitable ground set out in paragraph (k). Nevertheless the plaintiff does agree that I should proceed in the manner described below.

"Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair and unjust to other members, the court, if it is of the opinion that:

(a) the applicants are entitled to relief either by winding up the company or by some other means; and

(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;

must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."

**12 Re A Company[1] deals with the English equivalent of sub-s (4). In that decision, Vinelott J said that "some other remedy" referred to in the section is not merely limited to legal remedies, but encompasses the plaintiff who seeks relief being offered a price for his shares which was a fair price. In those circumstances the court could decline to wind up the company on the application of the plaintiff on the just and equitable ground if the plaintiff had been offered a reasonable sum for his shares and had refused to accept that sum.

13 Accepting as I do the construction of s 467(4), the defendant has indicated that if I accept the plaintiff is entitled to relief under the just and equitable ground it is prepared to buy the plaintiff's shares at a fair value to avoid a winding up order being made. The plaintiff also accepts the authority of Re A Company.

14 I have therefore embarked upon a hearing as to what is a fair value of the plaintiff's shares. In that hearing I am only forming a view as to what a fair value is so that I can exercise my discretion under s 467(4) whether or not to make a winding up order on the application of the plaintiff if the plaintiff is entitled to relief under the just and equitable ground.

15 In particular, if I form the view that the defendant has offered to buy the plaintiff's shares at a fair value and the plaintiff does not accept that offer, I may, in those circumstances, decline to wind the company up if I find the plaintiff is otherwise entitled to relief under the just and equitable ground. I may form the view that the plaintiff is acting unreasonably in seeking to have the company wound up rather than accepting a reasonable offer for his shares.

16 I have heard submissions and received evidence on the fair value of the plaintiff's shares. Both experts have valued the shares on the company's net assets. Both experts refer to the future maintainable earnings basis of valuation, the other usual method of valuing the company, but both have agreed the appropriate approach in this case is the net asset value method. The only difference between them is with respect to the treatment of legal expenses incurred by the company in the financial years ending 30 June 2003, 30 June 2004, 30 June 2005, 30 June 2006 and 30 June 2007.

17 Mr Ferrier, the valuer appointed by the defendant, has made no adjustments in respect of the legal fees and on that basis says the company has no value as its liabilities exceed its assets by some $154,047.

18 Mr McCann the valuer appointed by the plaintiff disagrees. He has added back the legal fees of some $243,082 to reach the total current assets of the company. On that basis he calculates a surplus of assets over liabilities of $89,035 and values the company accordingly. There is a mathematical error in there somewhere and he has ultimately come to a value of $80,000.

19 The plaintiff argues that the company incurred the legal fees for the benefit of the defendant. It seems to me that the only valid basis for adding back the legal fees when valuing the assets of the company would be if they reflect an asset of the company. That would be the case where the company has a valid claim to recover those moneys from Mr Stephens. The company may have such a claim if the fees were spent for the benefit of Mr Stephens rather than the company. If, on the other hand, the company could not recover those moneys from Mr Stephens because they had been expended for the company's benefit, then there would be no grounds for adding them back to the assets.

20 I was referred to the two paragraphs in Dodds-Streeton J's reasons. The first was paragraph 249 where her Honour said:**

"In the absence of a finding of oppression, the question of valuation which excludes the effects of oppressive conduct does not arise. The overriding requirement remains that the valuation of the company must be fair on the facts of the particular case. The company in the present case remains a going concern. The prima facie approach is therefore to value it at the date of the order. Although the defendant's expert initially indicated that the company had very little current value, the value of its shareholding in E program Asia had not been taken into account. The company's current value is uncertain".

"The company paid up to $100,000 for Mr Stephens' legal costs incurred in defence of the proceeding. The proceeding largely related to the dismissal and exclusion of Mr Joint, and other employees, for alleged breach of duty owed to the company. The company's interests substantially overlapped with those of Mr Stephens in the defence of the proceeding. The company had previously paid Mr Joint's own legal costs of litigation with his former employer. No evidence was led to the corporate benefit of the previous payments".

**21 Mr McCann gave evidence as to why he excluded or added back the legal expenses and I think it is correct to say in substance that he added them back because they related to Mr Stephens' defence of the proceedings. Accepting that they did relate to Mr Stephens' defence of the proceedings does not, however, answer the question of whether the company could recover these amounts from Mr Stephens on the grounds that they were spent for his private purposes, as opposed to company purposes.

22 As her Honour said in para 246: "The company's interests substantially overlapped with those of Mr Stephens in the defence of the proceeding". Although an order was sought for the winding up of the company under s 233 and under s 461, the company was not joined as a party. The substance to the oppressive conduct relied upon by the plaintiff was his exclusion from participation in the management of the company, whereas prior to his exclusion he had been a managing director.

23 The substance of Mr Stephens' answer to this complaint was that Mr Joint was excluded from the management of the company because Mr Joint was planning to use his position to act against the interests of the company. In particular, Mr Joint was planning to misappropriate the company's business for his own benefit by transferring the business to another company that he planned to establish.

24 I think it is fair to say that Dodds-Streeton J accepted that the conduct of the company in dismissing Mr Joint was appropriate in the circumstances and accordingly Mr Joint's application to wind up the company or compel the defendant to acquire his shares on the grounds of oppression failed.

25 I concede that there were other acts of oppression relied upon, but the substance of the alleged oppressive conduct goes back to the fact that Mr Joint, a managing director with a substantial shareholding, was locked out of the company, and that is a fairly stark position. Either he was properly locked out or he was improperly locked out. If he was improperly locked out, he probably would have succeeded on the oppression case. Those actions were taken by Mr Tan and Mr Stephens for the benefit of the company. True it is that they were substantial shareholders, but their actions were for the benefit of the company. They were seeking to protect the company's business.

26 In those circumstances, in my opinion, the company would not be able to recover from Mr Stephens the legal expenses incurred by him in defending the actions he took on behalf of the company. On the contrary, I would have thought that Mr Stephens would have a good claim against the company to be indemnified for his costs. In any event, I do not have any evidence before me which suggests that the legal costs incurred relate to matters other than the defence by Mr Stephens of the claim against him by Mr Joint. As the basis of the claims were the actions he incurred on behalf of and for the benefit of the company, it is my view that I have no grounds for finding that the company has any claim against Mr Stephens to recover the legal costs.

27 Mr Northrop, counsel for the plaintiff. submitted that the company did not break up the costs and his client is not in the position of dissecting and analysing those costs. That may very well be the case, but as I understood the matter, there was no suggestion that these legal expenses were incurred on any other matter other than the defence of actions that Mr Stephens and Mr Tan took on behalf of the company. As I said before, the plaintiff's application does seek an order that the company be wound up under the oppressive conduct section and I consider that the company would be duty-bound to resist that order if its directors considered it was not soundly based, which they did. Such an approach has been vindicated by Dodds-Streeton J's decision.

28 Therefore I have reached the position - and I think that both experts would agree with this - that if the legal expenses are not added back, Mr Joint's shares have no value. That finding may now have some relevance to whether or not Mr Joint's actions in accepting or refusing such an offer is unreasonable or not.

29 I will adjourn the matter to allow the parties to reflect on this finding.

30 The matter having now resumed after the parties have reflected on my earlier ruling, I have before me the application of the plaintiff to wind up the company pursuant to s 461(1)(f), (g) or (k) of the Corporations Act.

31 As I indicated in my earlier reasons the only ground which in my view is open to the plaintiff to pursue is para (k), where it is provided that the court may order the winding up of a company if "The court is of opinion that is just and equitable that the company be wound up."

32 Although that provision of s 461(1) of the Corporations Act provides that the court may make a winding up order, reliance was placed upon s 467(4), which provides:**

"Where the application is made by members as contributories on the ground that is just and equitable that the company should be wound up or the directors have acted in a manner that appears to be unfair or unjust to other members of the court, if it is of the opinion that

(a) the applicants are entitled to relief here by winding up the company or by some other means, and

(b) in the absence of any other remedy, it would be just and equitable that the company should be wound up

must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."

**33 As I indicated earlier in my judgment, the decision of Vinelott J in Re A Company[2] on a similar provision in the English Companies Act, makes clear that the reference to a remedy includes accepting an offer by another person for the applicant's shares. In my view "other remedy" is wide enough to include other courses of action.

34 It is also important to bear in mind what Vinelott J said at 860:**

"What s 255 (2) of the 1948 Act contemplates is I think a situation in which the continuance of the company would be unjust to the petitioner and where that injustice cannot be remedied by any step reasonably open to the petitioner. If an offer is made to purchase his shares he is thereby provided with an alternative course. The question is whether he is acting unreasonably in rejecting it".

**35 I have formed the view that the company has a deficiency of assets as according to the valuers the liabilities exceed the assets by some $150,000. Mr Stephens has offered Mr Joint $49 for his 49 per cent shareholding in the company. I take it Mr Joint has 49 shares. Mr Joint has rejected the offer. I do not believe that Mr Joint has acted unreasonably in rejecting that offer as the sum is merely a peppercorn sum of no real value.

36 On the other hand, one has to ask oneself, would the continuance of the company be unjust to Mr Joint. This is the question that Vinelott J posed in the passage I have just cited. In the typical case of a quasi partnership where the court finds that the partners have fallen out and one partner is excluded from the operation of the partnership or that the partners can no longer get along together, the court usually finds it is just and equitable to wind the company up. That approach was confirmed in Ebrahimi v Westbourne Galleries Ltd[3].

37 It is obvious why that is so. The winding up of the quasi partnership will enable the respective partners to terminate their relationship and to receive the capital they have in the partnership. In this case Mr Joint's shares are not worth anything, according to the view I have formed, and his position is no different to any other shareholder in a company where the shares are worth nothing. It has not been pointed out to me why it would be unjust to Mr Joint if the company was allowed to continue in existence.

38 The shares that he has are in a company with limited liability. He has mentioned in evidence and submissions, and I accept this, that he might have claims for unjust dismissal against the company. I do not see how the liquidation of the company is going to advance those claims one way or the other.

39 In the circumstances where I have found that Mr Joint's shares have no value, in my opinion, I can see no practical benefits that Mr Joint is being deprived of by the company not being wound up. He is not deprived of receiving any capital repayment for his shares. As far as I am aware under company law, there are no obligations imposed on him through mere ownership of the shares which have no value. He is not subject to any taxes or liabilities. Nothing has been put before me as to why he would be prejudiced by the continued existence of the company. If he changes address the company may have to register the change with ASIC. The obligation is on the company to do so not Mr Joint.

40 It is implicit in cases like Ebrahimi v Westbourne Galleries Ltd that a relevant prejudice to the petitioner is his or her interest in the company being at the mercy of the controllers of the company . In my view, this type of prejudice will not be suffered by Mr Joint in merely remaining on the share register as the owner of 49 shares. He effectively has no real interest in the company.

41 As Vinelott J said in Re A Company[4] quoted above, the relevant section "contemplates a situation in which the continuance of the company would be unjust to the petitioner." In my opinion, the continuance of the company would not be unjust to Mr Joint.

42 In the present circumstances where the shares have no value, in my view Mr Joint is acting unreasonably in seeking to have the company wound up where there is no practical or material benefit to him and where he suffers no injustice in the company remaining in existence. He can resign as a director if he is still a director. He can terminate his association with the company and its directors.

43 In those circumstances and bearing in mind that s 461(1) gives me a discretion, I am of the opinion that it is not just and equitable that the company be wound up and the application under paragraph 3 of the original motion be dismissed.

44 The position is therefore that, apart from paragraph 4, the order I would make is that the applications of the plaintiff for relief under the Corporations Act be dismissed.

45 The defendant has made an application for an order for costs and in particular that the defendant's costs on and from 4 October 2005 be paid by the plaintiff on an indemnity basis. The defendant relies upon a letter dated 4 October 2005 which it claims is a Calderbank offer letter. I will mark that as an Exhibit D11 and the response from Goldsmiths Solicitors dated 9 October 2005 will be Exhibit D12.

46 The letter Exhibit D11 is headed "Without prejudice except as to costs" and directed to the solicitors for the plaintiff. The letter says that the solicitors are instructed to make an offer and they offer some $150,000 to buy the plaintiff shares with certain terms as to settlement. It goes onto say that;

"Program IT Pty Ltd will at settlement provide a written forgiveness of the loan account presently standing in debit to your client in the sum of $110,053.85."

"Your client is to provide a release in favour of both our client and Program IT Pty Ltd in relation to the matters the subject matter of this proceeding and in relation to your clients (sic) employment by Program IT Pty Ltd".

**If I can interpolate at this point, the plaintiff submits that the effect of that term is to require the plaintiff to relinquish what claims it might have in relation to an unfair dismissal claim and possible other claims against Program IT Pty Ltd.

"Program IT Pty Ltd will provide a mutual release in respect to the matters set out in (3) above".

"The proceeding is to be dismissed with no orders as to costs".

"If this offer is accepted as set out below, your client is to provide, contemporaneously with the receipt of the first instalment of $100,000 the following:

(a) a signed resignation by him as director of Program IT Pty Ltd; and

(b) a written undertaking that neither he nor any associate (as defined by the Corporations Act 2001) will contact or approach any existing clients or suppliers of Program IT Pty Ltd".

Again if I can interpolate, the plaintiff says that I should bear in mind that that condition is unrestrained or unlimited as to time. The offer then goes on to say:

"This offer stands open for written acceptance until 4.00pm on 13 October 2005. In the event that your client fails to accept the offer within the time prescribed, we are instructed that our client will consent to an order that the next person nominated by the Prothonotary as Liquidator be appointed as Liquidator of Program IT Pty Ltd and the company be wound up. We are instructed to approach the Court pursuant to the Liberty to Apply to inform the court of our client's consent to a winding up order to give effect to the matter set out herein.

We await your response within the time prescribed. Your client should be aware that the within offer is non-negotiable.

48 It is important to note that that offer was made some twelve months after the proceedings commenced in October 2004, the time when Mr Joint was excluded from the management of the company. The plaintiff responded with a document headed "Without prejudice except as to costs". It takes dispute with the loan account and very broadly makes a similar offer back to the defendant to acquire his shares on effectively the same terms. There is a second offer which said that:

"This offer is repeated in the open letter, that an independent chartered accountant be appointed in order to value our clients(sic) shares as at the 30 June 2004, such valuations do not take into account the oppressive conduct by your client, and your client to pay to our client 49 per cent of the valuation as found by the independent accountant and from that sum, our client will repay his loan account (the amount to take account of the adjustments referred to above) and for your client to pay to our client 50 per cent of his costs of these proceedings. Each of these offers are subject to the parties execution formal terms of settlement. Should at the trial of this action, our client obtain a result at the hearing of this matter better than either of these offers then our client will rely upon this letter in support of a claim that your client pay to our client his costs of these proceedings to be paid on an indemnity basis".

**This paragraph highlights one of the major omissions from the defendant's letter in that it made no such statement.

49 I have been referred by the defendant to several cases, the most important of which was that of Nolan v Nolan[5], a decision of Dodds-Streeton J. Reference is also made to the decision of Chernov JA in PCR Investments Pty Ltd v National Gold Holdings Ltd[6], and there were references to other cases.

50 In Hazeldene Chicken Farm v VWA No.2[7], the Court of Appeal of this court, consisting of Warren CJ, Maxwell P and Harper AJA, said at p 442:**

"The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(a) The stage of the proceeding at which the offer was received;

(b) The time allowed to the offeree to consider the offer;

(d) The offeree's prospects of success, assessed as at the day of the offer;

(e) The clarity with which terms of the offer were expressed;

(f) Whether the offer foreshadowed an application for an indemnity cost in the event of the offeree's rejecting it.

It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs, unless the offer sets out with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless or because the offeree had no reasonable prospects of doing better in the proceeding than was being offered in advance. Once again, we think it neither necessary nor desirable to lay down any general rule in this regard. We agree with what Redlich J said in OCBC, as follows:

'Any attempt to prescribe the reasoning which must accompany [a Calderbank] offer should be resisted. Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer. The extent to which the weakness of a party's position is exposed through the pleadings, affidavits, and the various communications between the parties during the course of litigation may bear upon the significance of the absence of specificity in the informal offer'."

51 The unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs. As to this the court said at 441:

"The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more strengthened test such as 'manifestly' or 'plainly' unreasonable".

**52 The letter in Exhibit D11 does not put the offeree on notice that the rejection of the offer will lead to an application for indemnity costs in the event of the offeree rejecting it. In mitigation of that point, there is the reference in the heading "Without prejudice except as to costs", and probably more importantly is the recognition by the plaintiff's solicitors in their own letter of the consequences of the rejection of the offer.

53 In looking at whether or not it was unreasonable for the plaintiff to reject the offer one needs to scrutinise the amount offered. As is indicated in the passage I have read from Hazeldene, and more specifically in the decision of Dodds-Streeton J in Nolan, the letter contains no explanation as to why it is suggested that $150,000 is a fair value for the plaintiff's shares. That is particularly important in view of the findings made by Dodds-Streeton J about the value put on the company by the experts in October 2004. In paragraph 194, under the heading of "The value of the company as at 22 October 2004", she says as follows:**

"The Joint Report of Messrs McCann and Ferrier, dated 6 March 2007, indicated that the only remaining differences between them was whether or not the administration charges were valid expenses. Mr McCann considered that they were not bona fide expenses of the company. Mr Ferrier, however, did not adjust the administration charges, which he was not instructed to review".

"Both experts agreed to use EBIT, Earnings Before Interest and Tax, a multiplier of 4.75 and a two-year average. They agreed that the legal fees should be brought into account. They also agreed that the management fees should be discounted. On that basis, if the administration fees were invalid, the company's value as at October 2004 was $2,222,500, and Mr Joint's shares would be worth $1,089,025, from which his loan account repayment of $110,003 would be subtracted, to produce a value of $979,022 for his shareholding. If the administration charges were valid, the company's value as at October 2004 was $1,719,000. Mr Joint's shares would thus be valued at $842,310, and after the adjustment for his loan, their value would be $732,307".

I will omit Paragraph 196 and go down to Paragraph 197 with the heading "The Current Value of the Company":

"The experts also agreed that the net realisable assets method was appropriate for assessing the current value of the company. The experts did not, however, assign any value to the company's assets because they were too uncertain. According to Mr McCann, the current value (excluding the E Program Asia shares) would, perhaps, be in the order of $100,000 to $300,000. There was a contract with the Department of Defence, for which the Department had fully paid, but the company had not completed the work. Further investigation would be required, including a more detailed examination of the company's debtors by a specialist valuer and examination of its contingent liabilities to the Department of Defence. Such further investigations would require clear instructions on the status of the contract with the Department of Defence. The recoverability of loan accounts, including to the related entities, would also need to be considered".

"Based on his preliminary opinion, Mr Ferrier considered the current value of the company (excluding the E Program Asia shares) was $100,000 to $150,000. That would depend on the collectability of debtors, the value of assets, such as office furniture, the current contract with the Department of Defence and the collectability of the loan accounts. All assets and liabilities in the balance sheet would also need to be examined. Further, the shares in E Program Asia, which were held by Mr Tan for the company beneficially, would need to be valued".

**54 It seems to me that in the circumstances of this case a Calderbank offer required an explanation why $150,000 was reasonable to accept. Mr Joint had been excluded from the management of the company for a year. He could have been forgiven for thinking that the company was worth approximately $2,000,000 when he left the company. The company, through Mr Stephens, is making him an offer of $150,000 for his shares. As the authorities establish, one of the matters that goes to the reasonableness or unreasonableness in rejecting the offer, is whether or not the offer gives adequate reasoning as to why the offer should be accepted.

55 In this case, in my opinion, the offer should have gone into chapter and verse as to why Mr Joint's shares were only worth $150,000. There is nothing at all to justify the figure or any attempt to explain the figure. I think further weight should be given to that deficiency when one considers that Mr Joint suggests an independent accountant be appointed to value the shares, after Mr Joint has made a tongue in cheek offer back to Mr Stephens to buy his shares for the same value. Mr Joint's response indicates that he does not know what the shares are worth.

56 Secondly, and this is probably of less importance, is that there is nothing in the letter explaining why Mr Stephens considers Mr Joint will lose. In Nolan v Nolan Dodds-Streeton J said that is a relevant factor in considering whether or not the plaintiff acted unreasonably in rejecting this offer.

57 Taking into account the time when the offer was made and that it expired a week later, the lack of information about the true value of the company, the fact that the letter is not expressed to be a Calderbank offer, the fact that Mr Joint is not warned that the letter is going to be used in an application for indemnity costs, the fact that his counter-proposal shows that he is uncertain as to the value of the company, in my opinion Mr Joint's refusal to accept the offer was not unreasonable.

58 I realise that there is a dispute in the authorities as to whether or not there is a predisposition towards making an indemnity order for costs when an offer is not accepted and the plaintiff recovers less. I realise that some of the judges of this court are of the view it should be a predisposition to making such an order. Others in the Federal Court have said that there is an onus on the defendant to show that the plaintiff acted unreasonably in not accepting the offer. Even if the test be that there is a predisposition in favour of making an indemnity order (that is the test which is more favourable to the defendant) I find that the plaintiff's non acceptance of the offer was not unreasonable in the circumstances.

59 Accordingly, for those reasons I reject the application for indemnity costs as of and from 4 October 2005. I will order costs on the ordinary party/party basis in favour of the defendant.

60 I now turn to the issue of whether the costs order will affect whether or not the company has any value. I think the consequence of the cost order will be that, even if those costs are ultimately paid to the company, the company will only recover probably two thirds of the costs it expended in this proceeding. The legal costs incurred by the company in the first two years, which were in the years 2003 and 2004, were not incurred in this proceeding.

61 On my calculations, if the company was reimbursed two thirds of the balance it would only recover about the extent of the existing deficiency of assets. I acknowledge that in the submissions of the plaintiff, it was submitted to me in Paragraph 52 as follows:**

"It should also be remembered that it seems the defendant has not in fact paid any costs - the company's funds have been deployed for this purpose. The defendant is using the payment of costs to diminish the value of the company. If it later recovers any part of those costs, the value of the company would presumably increase."

**62 I overlooked that written submission when I was valuing the shares. Although I think I can say in my own defence I was not reminded of that point. Bearing in mind that I have now ordered costs on a party/party basis I think it is appropriate to say that the shares would still have no or little value. Therefore I will not revisit the foreshadowed order to dismiss the application to wind up the company.

63 I should also add that even if I had ordered the winding up of the company, it would have made no difference to my orders as to costs. The case was effectively an oppression case which the plaintiff lost.

64 The order of the court will be in this matter that the plaintiff's application seeking a declaration and for relief under the Corporations Act in the originating motion dated 16 November 2004 be dismissed with costs including reserved costs and including the costs of 30 October 2007.

65 On that occasion I expressed the view that I was surprised and disappointed the court was not forewarned of the application by the plaintiff made that day that the matter be heard by Dodds-Streeton J.

66 The defendant's counsel came ready and prepared to argue the matter without notice of the application. I think in those circumstances, the plaintiff should pay the costs of that day which I have included in the order.**

[1] [1983] 2 All ER 854.

[2] [1983] 2 All ER 854

[3] [1972] All ER 492

[4] [1983] 2 All ER 854 at 860

[5] [2003] VSC 136.

[6] [2002] VSC 824.

[7] [2005] VSCA 298; (2005) 13 VR 435.