Reale v Duncan Reale; Duncan Reale v Cameda Investments [2006] NSWSC 1099 | Case summary

1190/05 MARIA-RITA REALE V DUNCAN REALE PTY LTD & ANOR 1518/05 DUNCAN REALE PTY LTD V CAMEDA INVESTMENTS PTY LTD & ANOR JUDGMENT 1 HIS HONOUR: In proceeding No 1190 of 2005 in this court ("the First Proceeding"), Maria Reale sued Duncan Reale Pty Ltd ("Duncan Reale Company"), later joining Tony Duncan as second defendant, for relief of two kinds. First, she sought leave under s 237 of the Corporations Act to bring another proceeding on behalf of and in the name of Duncan Reale Company against Cameda Investments Pty Ltd and Mr Duncan as defendants. Secondly, she sought orders for the transfer to her, as trustee of a trust ("the Second Trust"), of 200,010 shares held by Duncan Reale Company in Cameda Investments. Leave was granted, and Ms Reale caused Duncan Reale to commence the foreshadowed proceeding, No 1518 of 2005, in this court ("the Second Proceeding"), principally seeking orders in reliance on the "statutory oppression remedy" for the addition of an independent director to the board of directors of Cameda Investments. 2 The remaining issue in the First Proceeding, the transfer of shares, was addressed by orders of the court made on 12 April 2006. The principal relief sought in the Second Proceeding, reconstitution of the board of directors of Cameda Investments, was granted by consent orders made on 13 February 2006. Although those orders were not subsequently implemented, the parties now concede that such relief is no longer necessary. Consequently all matters of substantive orders in the two proceedings have been addressed, and all that remains is the question of costs. 3 I dealt with the facts relevant to the question of costs in my reasons for judgment published on 3 April 2006 (Reale v Duncan Reale Pty Ltd [2006] NSWSC 227). Substantially the same evidence is before me now, together with some new affidavit evidence. It is sufficient for me to adopt the factual findings that I made on that occasion, with some supplementary findings that I shall make in the course of considering the submissions of the parties on costs. For ease of reference, I am attaching the relevant paragraphs of my 3 April judgment as an appendix to this judgment. In my judgment of 3 April 2006 I rejected applications by Mr Duncan in each proceeding for orders to transfer the proceedings to the Brisbane Registry of the Family Court of Australia, essentially on the ground that the substantive matters in contention in the two proceedings had been resolved and this court is in a better position than the Family Court to decide the only remaining matter, the question of costs. 4 The matters for consideration in the submissions of the parties invite and require the court to exercise its discretion with respect to costs, conferred by s 98(1) of the Civil Procedure Act 2005 (NSW). Section 98(1) is expressed to operate "subject to rules of court". Rule 42.1 of the Uniform Civil Procedure Rules 2005 states that "the court is to order that costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." Thus, although in the normal case the court orders that a successful party's costs be paid by the unsuccessful party, to the extent that they have been reasonably incurred in the conduct of litigation, there is a discretion to depart from the normal order. 5 I am required to resolve all matters of costs with respect to the two equity proceedings. That includes the costs of the hearing before Hamilton J, which he reserved, the hearing before me, various directions hearings, and a great deal of correspondence and negotiations about issues affected by events that occurred after the First Proceeding began. As far as I can see from the court's files, no costs orders have yet been made, except for an order making the costs of 12 May 2006 costs in the proceedings. 6 It is useful, and probably necessary, for the court to carry out the exercise of considering the merits of the parties with respect to the costs of each segment of the case. But that approach could produce a very complex result - say, a costs order for Ms Reale on some applications or issues, and a costs order for Mr Duncan on several other issues. Given the depth of antagonism between the parties, that has become apparent during the hearings before me, it is unlikely that they would agree on an overall figure to reflect such determinations, and so a series of costs orders made segment by segment would lead to a complicated, contested and probably prolonged process of costs assessment. Therefore, in the interests of achieving a just, quick and cheap resolution of the dispute between the parties as to costs, it is incumbent upon me, after I have evaluated the submissions of the parties on a segmented basis, to see whether I can achieve an overall outcome of a more simplified kind. Some pertinent facts 7 Although there are relatively full findings of fact in my judgment of 3 April 2006, set out in the Appendix to this judgment, it is appropriate to highlight a few matters pertinent to questions of costs. 8 The First Proceeding was commenced on 24 January 2005. Ms Reale complained, in circumstances she alleged to be urgent, of a deadlock in Duncan Reale Company and Cameda Investments, and contended that Mr Duncan had unilaterally removed Mr Boyd, a person who had been jointly appointed to a management position, putting the business of the operating company (Box Australia) at risk. Mr Duncan was joined as second defendant on 28 January 2005. Ms Reale foreshadowed that if leave was granted the under s 237, she would cause Duncan Reale Company to seek the appointment of an interim receiver or provisional liquidator of Cameda Investments. 9 Box Australia was placed into voluntary administration by its sole director, Mr Duncan, on 27 January 2005. Mr Duncan commenced a proceeding in the Family Court on 28 January 2005, and made an interlocutory application for injunctive relief against Ms Reale relating to the affairs of the companies, returnable on 9 March 2005. Ms Reale's solicitor was notified of Mr Duncan's intention to commence a proceeding in the Family Court prior to the initiation of the equity proceedings on 24 February. 10 When the First Proceeding came before Hamilton J as equity duty judge for hearing on 4, 7 and 9 February 2005, Mr Duncan appeared and opposed the making of any of the orders sought by Ms Reale, and he applied to have the proceeding stayed or transferred to the Family Court. 11 Hamilton J was concerned that the interests of Box Australia's parent, Cameda Investments, needed to be addressed by resolving several issues relating to the voluntary administration, including the question whether Box Australia should continue to trade and the question whether anyone, including Cameda Investments, would furnish it with funds ([2005] NSWSC 174, at [6]). His Honour rejected Mr Duncan's application for the dismissal or stay of the First Proceeding, because in his Honour's view it was necessary to address these matters more urgently, in the context of the administration, than would occur if they were left to be addressed in the Family Court proceeding. His Honour held (at [8]) that by granting leave under s 237, he would open the way for a derivative proceeding to be instituted on behalf of Duncan Reale Company, in which an interim application could be made before the Corporations Judge for the appointment of a receiver or provisional liquidator who could take steps to protect the interests of Cameda Investments. 12 Relying on his cross-examination of Ms Reale, counsel for Mr Duncan submitted that Ms Reale had given evidence of communications between her and Mr Duncan before the commencement of the hearing before Hamilton J, which would have given her reason to think that Mr Duncan might be open or amenable to a suggestion that he exit Box Australia as a director and that the company be reconstituted with an injection of funds by Ms Reale. He said that no such offer was ever put in correspondence but if it had been, it would have resolved the proceedings. Indeed Ms Reale herself gave affidavit evidence that there was no need for the appointment of a third director once a deed of company arrangement had been approved. 13 In my view the evidence on which counsel for Mr Duncan relied does not establish that Ms Reale had, prior to the commencement of the hearing before Hamilton J on 4 February 2005, formed a plan for the reconstitution and re-financing of Box Australia in specific enough terms to be the foundation of a proposal capable of acceptance so as to bring the proceedings to an end. Costs in respect of the hearing before Hamilton J, his Honour's granting of leave under s 237, and in respect of the derivative proceeding 14 To the extent that her application for leave under s 237 was granted, Ms Reale was successful in the hearing before Hamilton J and if that were considered in isolation, then (subject to one qualification) Mr Duncan would be ordered to pay Ms Reale's costs of and incidental to that hearing on the ground that costs should follow the event. The qualification is that Mr Duncan was not joined as a defendant until 28 January 2005, and so the order for costs against him would not apply to any period prior to that date. 15 The principal relief sought in the derivative proceeding, commenced pursuant to the leave granted by Hamilton J, was an order for the appointment of a third, independent director to Cameda Investments. An order in substantially those terms was made by Barrett J, by consent, on 23 February 2005. Again, if those matters were considered in isolation, Mr Duncan would be ordered to pay the plaintiff's costs of the derivative proceeding (the plaintiff being Duncan Reale Company) on the ground that costs should follow the event. 16 I was referred to a Calderbank letter (Calderbank v Calderbank [1975] 3 ER 333) written by Mr Duncan's solicitors on 16 February 2005, offering to settle the derivative proceeding prior to its commencement upon stated terms (in fact, the originating process had already been filed). Counsel for Mr Duncan submitted that the terms on which the Second Proceeding was determined were no more favourable to the plaintiff than the terms of that letter, and therefore the court should award Mr Duncan his costs on and from 16 February 2005 on a party and party basis (citing Leichhardt Municipal Council v Green [2004] NSWCA 341 at [45]-[46]). I think the short answer to that submission is that the terms of the consent orders made by Barrett J on 23 February 2005, which resolved the proceeding in favour of the plaintiff, were clear and substantially more detailed than the terms offered on 16 February 2005. Indeed, Ms Reale's solicitors had written on the same day querying the meaning of some of the terms put forward in the letter of 16 February. In the circumstances, I do not regard myself as being in a position to say that the matter was settled on terms no more favourable to the plaintiff than the terms of the letter of 16 February. 17 Counsel for Mr Duncan contended that the normal rule that costs follow the event should not be applied with respect to the hearing before Hamilton J and matters associated with it, for two other reasons. The first reason relates only to the hearing before Hamilton J, while the second reason relates both to Hamilton J's decision to grant leave and to the bringing of the derivative proceeding pursuant to that leave. Mr Duncan's first reason: Ms Reale's decision not to press for relief in respect of the transfer of shares at the hearing before Hamilton J 18 Ms Reale's originating process in the First Proceeding sought relief with respect to two matters, namely leave under s 237 to commence a derivative action and orders for the transfer of shares. She obtained leave under s 237 (though not to the extent that her proposed derivative action would have sought compensation from Mr Duncan) but Hamilton J did not deal with the transfer of shares issue, which was resolved only by orders made on 12 April 2006. Therefore the "event" from which, arguably, costs should follow is the granting of leave under s 237, part only of the First Proceeding. 19 No indication was given to Mr Duncan, prior to the hearing, that Ms Reale would seek anything less than the full relief sought in the originating process. Indeed, as counsel for Mr Duncan pointed out in submissions for the costs hearing, the transfer of shares was a central issue in pre-hearing correspondence and settlement discussions, and it was obviously an important issue for Mr Duncan because Cameda Investments is the entity which holds substantially all of the joint matrimonial assets of Mr Duncan and Ms Reale. It was not until the hearing before Hamilton J that counsel for Ms Reale announced that his client would not, at that stage, press the claim for relief with respect to the transfer of shares. This meant that Mr Duncan's preparation on the transfer of shares issue, for urgent hearing before Hamilton J, was rendered unnecessary. 20 Counsel for Mr Duncan submitted at the costs hearing that Ms Reale, by this conduct, had put Mr Duncan to considerable additional expense and inconvenience that proved to be unnecessary, and therefore she should be deprived of the costs of the hearing before Hamilton J or a significant portion of them. He said that in these circumstances, the ordinary rule as to costs, that they follow the event, should not be applied. He contended that the court has a wide enough discretion to deprive a successful party of their costs, or even, in a rare case, to require a successful party to pay the costs of the unsuccessful party (citing Ritter v Godfrey [1920] 2 KB 47 at 60; MLC Insurance Ltd v FAI Traders Insurance Co Ltd (1994) 49 FCR 23 at 26-27, and Russo v Resource Developments International Pty Ltd (No 2) [2003] NSWSC 446 at [14]-[15]). One of the occasions for abandoning the rule that costs should follow the event is where a party, by its misconduct, has contributed unnecessarily to the time and cost of litigation or has unnecessarily taken up the time of the court and other parties (Russo v Resource Developments at [14] [15]; Colgate-Palmolive Co v Cussens Pty Ltd (1993) 46 FCR 225 at 233). 21 I agree that the court's discretion under s 98 and rule 42.1 is wide enough to permit it to reverse or qualify the normal rule that costs follow the event. I also agree that Ms Reale's conduct in respect of the transfer of shares issue caused unnecessary costs for Mr Duncan. I realise that it was necessary for Mr Duncan and his legal advisers to consider the transfer of shares issue in any case, but the point is that Ms Reale's conduct caused Mr Duncan to incur unnecessary costs in preparing for a hearing on the matter on an urgent basis. This should lead the court to reduce her costs as the successful party in respect of the hearing before Hamilton J by a substantial portion, reflecting the costs thrown away by the unnecessary preparation of the transfer of shares issue for urgent determination. Mr Duncan's second reason: did Ms Reale achieve real or merely trivial success? 22 The second matter raised by counsel for Mr Duncan concerned whether Ms Reale really achieved success when she obtained an order granting leave under s 237 to bring a derivative proceeding seeking an order to add an independent director to the board of Cameda Investments, and subsequently, in the derivative proceeding, consent orders for the appointment of an independent director. 23 Counsel for Mr Duncan submitted that the ordinary rule as to costs should not be applied if the plaintiff's claim is trivial and unmeritorious, even though it is technically successful (citing Schweppes Ltd v O'Connor [1913] St R Qd 289, Howell v Dering [1915] 1 KB 54, Green v Page [1957] Tas SR 66 and Holden v Cronulla Golf Club (unreported, Supreme Court of New South Wales, Young J, 24 June 1986). He contended that the primary relief sought in the derivative proceeding, the appointment of a third, independent director to Cameda Investments, was trivial and unmeritorious, even though that relief was granted by Barrett J's orders of 23 February 2005, consented to by Mr Duncan. 24 I do not accept this submission. It is evident, from the surrounding correspondence and the fact that Mr Duncan consented to the orders, that at the time when Barrett J made his orders, the proposal to appoint an independent third director nominated by the Institute of Chartered Accountants was a live proposal. Barrett J's orders were regarded by Boland J in the Family Court as substantially resolving the derivative proceeding, and so they did, in my view. 25 Subsequently the Institute of Chartered Accountants declined to nominate a third director. Counsel for Mr Duncan submitted that any difficulties with the process of appointment ought to be regarded as matters for which Ms Reale, not Mr Duncan, is accountable on any costs determination. But Mr Duncan consented to the orders, and in any event, the subsequent difficulty in carrying out the orders does not derogate from the conclusion that Ms Reale achieved, by means of the consent orders, the substantive relief that she sought. 26 Apart from the difficulty that arose from the Institute's attitude to nomination of the third director, implementation of the orders appears to have been superseded by events that occurred after the orders were made. The background of those events is that on 31 January 2005, that is prior to the making of the consent orders, the administrators of Box Australia caused that company to cease to trade on the grounds that there were insufficient funds to pay employees and creditors. That was the state of affairs on 23 February. On 4 March 2005 the creditors of Box Australia resolved to request the administrators to remove Mr Duncan as director of Box Australia and to appoint Ms Reale and Silvestro Reale as directors in his place, and at their adjourned meeting on 14 March 2006, the creditors resolved to approve a deed of company arrangement. 27 As counsel for Mr Duncan pointed out, there is nothing in the evidence to suggest that the equity proceedings caused the creditors to adopt the resolutions that were adopted at their meetings of 4 March and 14 March 2005. But the arrangements adopted by the creditors meant that the circumstances had changed so radically that the implementation of Barrett J's orders had become pointless. That is different from saying that Ms Reale's claim was trivial or unmeritorious in the same sense as, say, the plaintiff's claim in Holden v Cronulla Golf Club (a complaint about the enforcement against the plaintiff of a club rule requiring players to carry a bucket and fill for the repair of divots). 28 Counsel for Mr Duncan referred to evidence given by Mr Duncan that, prior to the creditors' meeting of 4 March, the parties had agreed that Mr Duncan and Ms Reale would procure Cameda Investments and Box IT (UK) to vote as creditors in favour of an adjournment of the meeting for 9 days (an agreement noted in consent orders made by Campbell J on 3 March 2005). He said that at the meeting on 4 March, without prior notice to Ms Duncan, Ms Reale's proxyholder tabled a motion that a recommendation be made to the administrators to remove Mr Duncan as a director and to appoint Ms Reale and Silvestro Reale to the board. But, whatever other consequences may have arisen from those matters, if true, they do not mean that Ms Reale was unsuccessful in her claim for leave to bring a derivative proceeding and in prosecuting the claim for the appointment of an independent director in the derivative proceeding. Nor is it germane that Cameda Investments and Box IT (UK) abstained from voting on the proposal to approve the deed of company arrangement at the meeting on 14 March. 29 It might be contended that, in light of the decisions of the creditors, it was unnecessary for Ms Reale to commence proceedings seeking relief by way of orders for the appointment of an independent director. But Mr Duncan did not put Box Australia into voluntary administration until after Ms Reale had initiated the First Proceeding. At the hearing on 4, 7 and 9 February it appeared to Hamilton J to be important for the control of Cameda Investments to be addressed, so that it could make decisions as creditor in the voluntary administration. In summary, the facts do not support a contention that it was unnecessary for Ms Reale to take proceedings when she did. 30 While, therefore, my conclusion is that Duncan Reale Company as plaintiff in the derivative proceeding has succeeded and accordingly (if this aspect of the case were considered in isolation) should be given costs on the principle that costs should follow the event, it seems to me that the costs do not extend beyond the point of success, which occurred when Barrett J made consent orders on 23 February 2005. Subsequent events did not, in my view, relate to the resolution of the derivative proceeding. Rather, they concerned other matters to do with the voluntary administration of Box Australia and, perhaps, impliedly foreshadowed applications for further relief with respect to the corporate governance of Cameda Investments which never quite materialised. Those are not matters leading to any event of success to which costs should catch. Costs in respect of the transfer of shares issue 31 In my judgment of 3 April 2006 I described how Mr Duncan made an offer on 13 April 2005 to consent to the orders sought by Ms Reale for the transfer of shares, and I found that his offer was accepted by Ms Reale on 17 March 2006. There is no evidence to explain Ms Reale's delay of nearly a year in responding to Mr Duncan's offer. Those findings suggest that if the resolution of the application for transfer of shares were to be considered in isolation, any costs incurred by Mr Duncan in respect of that matter during the period from 13 April 2005 to 17 March 2006 should be borne by Ms Reale. But it appears that the matter is more complicated than I had thought when I delivered my earlier judgment. 32 Counsel for Mr Duncan drew my attention to his solicitors' letter of 25 January 2005 (referred to in para [27] of my judgment of 3 April 2006) which, for the first time, conveyed Mr Duncan's offer to consent to the transfer of shares. As I pointed out in my judgment, Mr Duncan's offer was subject to Ms Reale giving an undertaking that she would not exercise her powers as trustee shareholder except in the ordinary course of business. According to Ms Reale's solicitor, such an undertaking was unacceptable to Ms Reale because it would prevent her from using the shareholding to resist oppression by Mr Duncan and from seeking the appointment of a receiver. 33 The submission by counsel for Mr Duncan at the costs hearing was that an undertaking substantially in the form required by the letter of 25 January was actually given by Ms Reale to the Family Court on 18 February 2005 (referring to Mr Duncan's affidavit of 18 May 2006, Annexure D), and therefore she had no reasonable basis for resisting this condition. He submitted that Ms Reale's unreasonable rejection of the offer, her failure until 17 March 2006 to accept Mr Duncan's subsequent offer made on 13 April (and repeated on 18 November 2005), and her failure to achieve a better outcome than was offered to her on 25 January 2005 when final orders were made, are all matters that the court should take into account in the exercise of its discretion. I agree with these submissions. 34 Senior counsel for Ms Reale drew attention to the fact that the undertaking to the Family Court was given by her after Hamilton J had made his orders granting leave to her to commence the derivative action. He submitted that the giving of an undertaking at that stage says nothing about the situation as it was prior to Hamilton J's decision. But the point advanced on behalf of Mr Duncan was that there was no inherent reason for Ms Reale not to give such an undertaking, and therefore her refusal to do so was unreasonable, even at the earlier stage. I agree with that point. Senior counsel for Ms Reale also said that the undertaking was given on a temporary basis and was not extended by Boland J when she came to deliver her judgment. I do not regard those matters as material to the point made by counsel for Mr Duncan. 35 I note, in passing, a conflict of evidence that does not need to be resolved. Mr Duncan's solicitor gave evidence of a telephone conversation he had with Mr Parker, senior counsel for Ms Reale, on 28 January 2005. According to the solicitor, he and Mr Parker reached agreement to a transfer of the shares subject to an exchange of undertakings to ensure that the shareholdings of the parties would be equal and hence neither would have control of Cameda Investments. Ms Reale's solicitor, who was with Mr Parker during the conversation, gave evidence by affidavit and in cross-examination denying that Mr Parker reached any such agreement with Mr Duncan's solicitors. It seems to me unnecessary to decide whether an agreement was reached by the representatives of the parties on 28 January because, as I have said, three days earlier the letter of 25 January had made an offer subject to a condition that Ms Reale had no reasonable basis for resisting. That conclusion is sufficient for the purpose of the court's exercise of discretion with respect to costs. 36 Counsel for Mr Duncan then submitted that, in light of these discretionary considerations, the court should award Mr Duncan his costs with respect to the issue of transfer of shares on and from 25 January 2005, at least on a party and party basis, even though Ms Reale ultimately secured an order for the transfer of the shares along the lines she had originally sought. He relied upon observations by Santow JA, with which Bryson and Stein JJA agreed, in Leichhardt Municipal Council v Green [2004] NSWCA 341. In that case the Court of Appeal was dealing with a Calderbank offer, rather than a formal offer of compromise under the rules of Court. As Santow J said (at [44]), the rules do not constrain the court's discretion as to costs when dealing with a Calderbank letter. Santow JA expressly contemplated, apparently as a matter of general principle for the exercise of the court's discretion, that if a plaintiff fails to give adequate consideration to a defendant's offer, and is subsequently successful in obtaining relief no better than the terms offered by the defendant, the court may impose a sanction on the plaintiff by depriving the plaintiff of costs and awarding costs in favour of the defendant. According to Santow JA, this is ordinarily done on a party and party basis. 37 That approach to the exercise of the court's discretion is reflected in the rules of court concerning formal offers of compromise. Those rules are presently found in Part 42 Division 3 of the Uniform Civil Procedure Rules 2005. Mr Duncan's offer in his letter of 25 January 2005, and his later offer with respect to the transfer of shares, were not offers of compromise for the purposes of the rules, because they did not comply with the formalities now found in rule 20.26. Nevertheless the principle underlying the rules is relevant in the present case, and reflects the observations as Santow JA. In particular, rule 42.15 contemplates that if the defendant makes an offer of compromise that is not accepted by the plaintiff, and the plaintiff later obtains an order no more favourable than the terms of the defendant's offer, the normal outcome (unless the court orders otherwise) is that the plaintiff is entitled to an order for costs up to and including the day on which the offer was made, and the defendant is entitled to costs after that day. 38 In the case of a formal offer of compromise, rule 42.15 provides that the costs order in favour of the defendant be on the indemnity basis, unless the court otherwise orders. Santow JA, dealing with a case where the offer was not on offer of compromise under the rules, said that in the normal case costs are awarded on the party and party basis. Since I am dealing with an offer by Mr Duncan that was not an offer of compromise under the rules, the present case is closer to the one before Santow JA than to the one addressed in rule 42.15. Additionally, I do not regard Ms Reale's response to the offer of 25 January 2005, and her lengthy and unexplained delay in responding to the offer of 13 April 2005, as the kind of conduct that should attract a costs order on an indemnity basis, given that the imposition of a costs order against her on any basis is a substantial sanction against a plaintiff who has achieved the result that she set out to obtain. 39 After Hamilton J's judgment of 9 February 2005, the transfer of shares was the only issue outstanding in the First Proceeding. Therefore any costs order in respect of a period after that date should apply to the First Proceeding as a whole. The result of these considerations is that, if I were to confine my attention to the facts relating to Mr Duncan's offers and the ultimate resolution of the question of transfer of shares in isolation, I would be inclined to: · order Mr Duncan to pay Ms Reale her party and party costs of preparation and filing of the originating process with respect to the transfer of shares, and associated contemporary correspondence, up to and including 25 January 2005 but not her costs after that time (including her costs of and incidental to the hearing before Hamilton J so far as it related to the transfer of shares), and · order Ms Reale to pay Mr Duncan his party and party costs of the First Proceeding from 26 January to 9 February 2005, with respect to Ms Reale's application for the transfer of shares (including costs of and incidental to the hearing before Hamilton J so far as they related to that issue), and his party and party costs of the First Proceeding generally as from 10 February 2005. Costs of Mr Duncan's application for transfer to the Family Court 40 In my reasons for judgment published on 3 April 2006 I dismissed Mr Duncan's application for transfer of the equity proceedings to the Family Court, on the ground that the substantive issues in the two equity proceedings had been resolved and the only remaining issue was the question of costs, which was better addressed by the court in which the proceedings were brought. Ms Reale seeks an order that Mr Duncan pay her costs in respect of that application because she was successful in resisting it. Such an order would reflect the court's general approach that costs should follow the event. 41 However, at the time when Mr Duncan's applications for transfer of the two equity proceedings to the Family Court were filed, the position was that Ms Reale had not, for about 11 months, responded to Mr Duncan's offer that he would agree to the transfer of the shares as long as the net holdings of the parties were equal. This was an important matter for Mr Duncan because, as I have said, substantially all of the joint matrimonial assets are held in Cameda Investments. To the extent that there was still a dispute between the parties as to whether the shares should be transferred and if so, whether the existing constraints upon Ms Reale by virtue of the interim orders in the Family Court would be adequate, there was effectively an issue between husband and wife about questions of matrimonial property of the kind most appropriate to be dealt with in the Family Court. Therefore it was reasonable for Mr Duncan to take steps to have that issue transferred for resolution by the Family Court in the context of the proceeding that was already on foot in that court. In my opinion Ms Reale's failure to respond to Mr Duncan's offer lead to the making of the transfer application. Although she communicated her acceptance of the offer shortly after the transfer applications had been made and before they were heard, it was in my view reasonable for Mr Duncan to proceed to place the issues before the court for determination. In my view, in these circumstances Mr Duncan should not be required to pay Ms Reale's costs of the transfer applications. The corporate complication 42 The real protagonists in this litigation are Ms Reale and Mr Duncan. Duncan Reale Company and Cameda Investments are entities which they own and control. But they cannot be disregarded because they are the vehicles through which the matrimonial assets are held; further, Duncan Reale Company is a defendant in the First Proceeding and the plaintiff in the Second Proceeding, and Cameda Investments is a defendant in the Second Proceeding. 43 If an order for costs is made against Mr Duncan or Ms Reale and in favour of Duncan Reale Company or Cameda Investments, half of the economic benefit will go to Ms Reale and the other half will go to Mr Duncan (or, perhaps, the beneficiaries of their respective trusts). Effectively half of the costs will come back to the party paying them. 44 If an order for costs is made against Duncan Reale Company or Cameda Investments and in favour of Mr Duncan or Ms Reale, the party having the benefit of those costs will be given, in substance, priority access to the matrimonial assets to the extent of those costs. However, as was pointed out in submissions, it may be that the company would have a right of indemnity against one of the parties for recovery of any costs it was ordered to pay. 45 The question of costs of a derivative proceeding or application for leave is specifically addressed by the Corporations Act, in the following terms: "242 The court may at any time make any orders it considers appropriate about the costs of the following persons in relation to proceedings brought or intervened in with leave under s 237 or an application for leave under that section: (a) the person who applied for or was granted leave; (b) the company; (c) any other party to the proceedings or application. An order under this section may require indemnification for costs." 46 Section 242 gives the court a very broad discretion to make such order as it considers just and appropriate for the proper and efficacious conduct and resolution of the derivative action in the application for leave to commence it. In the present case, exercising my discretion under that section, it is open to me to make orders for costs in respect of the First and Second Proceedings having the effect of excluding both Duncan Reale Company and Cameda Investments from the contest for costs. 47 Section 242 gives the court the power to achieve this outcome, although there is a degree of complexity involved in doing so. The section would permit me to achieve the desired outcome in the First Proceeding, where Ms Reale is the plaintiff, Duncan Reale Company is the first defendant and Mr Duncan is the second defendant, by making: · an order that Mr Duncan pay Ms Reale's costs of the proceeding on the condition that there would be no order against the company and no liability of the company for her costs; or · an order that Ms Reale pay Mr Duncan's costs of the proceeding, on the condition that Mr Duncan would be required by the order to indemnify the company in respect of its costs of the proceeding but would be entitled to recover those costs from Ms Reale. 48 In the Second Proceeding, where Duncan Reale Company is the plaintiff but it is acting through Ms Reale who has the carriage of the action, and the defendants are Cameda Investments and Mr Duncan, I could achieve the desired outcome by making: · an order that Mr Duncan pay Duncan Reale Company's costs of the proceeding on the condition that there would be no order against Cameda Investments and no liability for that company to pay Duncan Reale Company's costs, together with an order that Duncan Reale Company indemnify Ms Reale for her costs of prosecuting the proceeding on behalf of Duncan Reale Company, to the extent that those costs are recoverable by Duncan Reale Company against Mr Duncan; · an order that Duncan Reale Company pay Mr Duncan's costs of the proceeding, on the condition that Mr Duncan would be required by the order to indemnify Cameda Investments in respect of its costs of the proceeding but would be entitled to recover those costs from Duncan Reale Company, together with an order requiring Ms Reale to indemnify Duncan Reale Company in respect of its obligation to pay the costs of Mr Duncan and Cameda Investments. 49 Those are approaches available to be taken in the event that I make costs orders in favour of either Ms Reale or Mr Duncan and against either Mr Duncan or Ms Reale. If I were to take the view that costs should lie where they fall, as between Ms Reale and Mr Duncan, and that there should be no costs locked up in either of the companies, I could achieve that outcome by ordering: · in the First Proceeding, that there be no order as to costs, with the intention that each non-corporate party bear their own costs, subject to an indemnity by Mr Duncan of Duncan Reale Company for its costs of the proceeding; and · in the Second Proceeding, that there be no order as to costs, with the intention that each non-corporate party bear their own costs, subject to indemnities by Ms Reale of Duncan Reale Company and by Mr Duncan of Cameda Investments for their respective costs of the proceeding. 50 I have decided that it is appropriate in this case to deal the companies out of the costs equation in this last fashion. I take into account that both Duncan Reale Company and Cameda Investments are (directly and indirectly respectively) wholly owned by Ms Reale and Mr Duncan and repositories of matrimonial assets. They are not separately protagonists but instead, they have been brought into litigation where the true protagonists are the husband and wife, Ms Reale and Mr Duncan. In my view justice requires that the costs orders should reflect the merits of those protagonists and not become complicated by the presence in the proceedings of the corporate entities. If I were to make orders for or against either of the corporate entities I might achieve an outcome that I am not in a position to foresee, because of the existence or absence of indemnities not created by the orders themselves and the presence or absence of access to assets through the particular entity. 51 Senior counsel for Ms Reale submitted that she should be indemnified by Duncan Reale Company in respect of the costs of the derivative proceeding, by analogy with a trustee who has obtained judicial advice - given that Hamilton J found, when granting leave, that the bringing of the derivative proceeding was in the best interests of Duncan Reale Company. Senior counsel referred to Wallersteiner v Moir (No 2) [1975] 1 QB 373, a decision of the English Court of Appeal concerning a derivative action brought on behalf of a company under the principles of the general law, rather than any statutory regime. There Buckley LJ said that in the normal course in such a proceeding, the company should be ordered to pay the costs of the shareholder who prosecutes the action on its behalf, if the shareholder is acting in good faith and on reasonable grounds (at 403; see also at 392 per Lord Denning MR). 52 I do not disagree with his Lordship's approach, as applied to a derivative action brought by a minority shareholder to assert the rights of a company which has some breadth of shareholding. But here the company is the parent company in a group which holds the matrimonial assets of Mr Duncan and Ms Reale, who are the true protagonists in the litigation, and it is owned by them. To afford Ms Reale a right indemnity enforceable against the company's assets merely on the ground that she has acted reasonably and in the company's best interests, would be to run the risk of achieving an unjust result as between husband and wife, given that recovery against the company's assets is, substantially, a partial recovery against the other spouse's assets. In my opinion it is preferable, in such circumstances, to make costs orders having effect only as between the spouses. 53 Observations similar to those of Buckley LJ but directed to the Australian statutory provisions were made by Barrett J in Foyster v Foyster Holdings Pty Ltd (2003) 44 ACSR 705, at [13]. They are distinguishable from the facts of the present case on the same basis. An overall assessment of costs 54 Approximately speaking, I have reached the following provisional conclusions: (a) Ms Reale has an entitlement to costs against Mr Duncan with respect to the First Proceeding after 28 January 2005, to the extent that she successfully sought leave under s 237, but those costs should be substantially reduced because, by her conduct, she caused Mr Duncan to incur unnecessary preparation costs for the hearing before Hamilton J, in respect of the transfer of shares issue; (b) Duncan Reale Company has an entitlement to costs with respect to the derivative proceeding up to the making of consent orders on 23 February 2005; (c) Mr Duncan has an entitlement to costs with respect to the transfer of shares issue as from 25 January 2005; (d) although she successfully resisted Mr Duncan's applications for the transfer of the equity proceedings to the Family Court, Ms Reale is not entitled to the costs of doing so because, by her failure to respond to the transfer of shares offer, she put Mr Duncan in the position of making the applications, and in the circumstances there should be no order for costs with respect to the applications; (e) I can and should make orders for costs confined to the positions of Mr Duncan and Ms Reale (personally and as prosecutor of the derivative action on behalf on Duncan Reale Company), orders having the effect of "dealing out" the two corporate entities who were joined as parties. 55 As I have foreshadowed, I am concerned that, in view of the deep hostility of the parties towards one another, complex costs orders will lead to further expensive disputes. From what I can see from the evidence, my view is that if I confine my attention to Ms Reale and Mr Duncan and sidestep the companies in the manner I have indicated, their respective wins and losses on entitlements to costs for the individual components of the case are approximately of equal value. That, of course, is not a precise assessment of the kind that would be made by a costs assessor working item by item through bills of costs, but it is an assessment based on consideration of the evidence in detail, in the light of the court's knowledge and experience of appropriate and probable costs outcomes. Though approximate, I think it is an assessment upon which I should act, with a view to achieving the just quick and cheap resolution of the costs dispute. 56 I have therefore decided that the correct course is to make no order for costs with respect to the First and Second Proceedings, with the intention that each of Ms Reale and Mr Duncan should bear their own costs of both the proceedings and all applications within them, including costs of the corporate entities that my orders shall, in effect, attribute to them respectively. As far as the First Preceding is concerned, Mr Duncan should bear his own costs and the costs (if there are any separate costs) of his co-defendant Duncan Reale Company and Ms Reale should bear her costs as plaintiff. As far as the Second Proceeding is concerned, Ms Reale should bear the costs of Duncan Reale Company and Mr Duncan should bear the costs of Cameda Investments, his co-defendant (if there are any separate costs). Those outcomes will be achieved by making appropriate indemnity orders under s 242. 57 I have considered whether I should make any exceptions to the general proposition that the parties bear their own costs. For example, counsel for Mr Duncan submitted that he should have his costs of the appearances on 21 February 2005 before White J (when the proceedings were adjourned due to a defect, he said, in the plaintiff's originating process) and 14 November 2005 (when there was no appearance by the plaintiff). I have decided not to do so. All of the wins and losses on individual occasions during the course of the proceedings (including the two matters I have mentioned) are adequately addressed by taking them into account in the overall assessment that I have made, leading to the conclusion that each party should bear their own costs. Conclusions 58 My conclusion as to costs requires that I vacate a costs order made on 12 May 2006, to the effect that the costs of that day be costs in the proceedings. 59 I shall make the following orders: (1) In proceeding No 1190 of 2005: (a) no order as to costs; (b) order under s 242 of the Corporations Act 2001 (Cth) that the second defendant indemnify the first defendant for its costs; with the intention that the plaintiff bears her own costs and the second defendant bears his own costs and the costs of the first defendant; (2) In proceeding No 1518 of 2005: (a) no order as to costs; (b) order under s 242 of the Corporations Act 2001 (Cth) that Maria-Rita Reale, the person who was granted leave under section 237, indemnify the plaintiff for its costs; and (c) order under s 242 of the Corporations Act 2001 (Cth) that the second defendant indemnify the first defendant for its costs; with the intention that Ms Reale bears the costs of the plaintiff and the second defendant bears his own costs and the costs of the first defendant; (3) In orders (1) and (2), "costs" means costs of the proceeding and all applications in the proceeding; (4) In proceedings Nos 1190 2005 and 1518 of 2005, I vacate the order made on 12 May 2006 that the costs of that day be costs in the proceedings. ********** APPENDIX Extracts from the judgment in Reale v Duncan Reale Pty Ltd [2006] NSWSC 227 4 The underlying dispute in this court is a company dispute connected with the breakdown of the marriage between Mr Duncan and Ms Reale, who have been separated since November 2004. Since that time Mr Duncan has lived in Brisbane, while Ms Reale remains in Sydney, where they lived together before the separation. 5 The first defendant ("Duncan Reale Company" or "the Company") is an Australian company, the directors and equal shareholders of which are Mr Duncan and Ms Reale. It is the trustee of the Duncan Reale Family Trust ("First Trust"), and prior to 21 January 2005 was trustee of the Duncan Reale Family Trust II ("Second Trust"). It does not trade or engage in business activities. 6 Duncan Reale Company owns all of the shares in Cameda Investments Pty Ltd ("Cameda Investments"), another Australian company, the directors of which are Mr Duncan and Ms Reale. Cameda Investments does not trade or engage in business activities. Cameda Investments is the shareholder of Box Information Technology Pty Ltd ("Box Australia"), and Box IT Ltd, a United Kingdom company ("Box IT (UK)"). 7 Prior to its administration, Box Australia's business was to provide software consulting services to clients. Mr Duncan was its sole director until late March 2005. 8 Mr Duncan gave evidence (objected to in the manner indicated above) that, before he separated from Ms Reale in November 2004, he spent approximately 65% of his time working in either Brisbane or Perth. He said that although he had begun the business in Sydney, as it grew most of the business activity took place outside New South Wales. He said that there were only two employees, and Ms Reale, working in the Sydney office in Drummoyne. Ms Reale was responsible for administrative and financial functions. He said that he opened the Brisbane office in July 2003 and that by 2004 the majority of the business activity was taking place outside New South Wales, and consequently the majority of the employees and contractors as well as the external creditors of the business were located outside New South Wales. Voluntary administrators based in Brisbane were appointed to Box Australia on 27 January 2005. A deed of company arrangement was entered into in April 2005 and that arrangement was, according to Mr Duncan, discharged in August 2005. 9 Counsel for Ms Reale contested Mr Duncan's evidence about the location of business activity, tendering company searches for Box Australia and Cameda Investments, each dated 23 December 2004, which in each case showed the company's registered office and current principal place of business as an address in Drummoyne in Sydney (for each company the registered office and the principal place of business were at the same address, but the addresses were different for each company). Mr Duncan's evidence does not explain why the ASIC records do not correspond with the way the business was conducted. 10 According to Mr Duncan, Box IT (UK) does not trade and its sole asset is cash of approximately GBP125,000, though there may be a dispute about this that I need not resolve here. 11 Both sides accept that Duncan Reale Company holds 400,020 shares in Cameda Investments. Half of those shares are held by the Company as trustee of the First Trust, and half are held by it as trustee of the Second Trust. Not all of the documents to give effect to share allotments were signed by Mr Duncan, but Ms Reale's solicitors asserted that he had agreed to the allotments, and (as noted below) Mr Duncan's solicitors acknowledged that this was the case. 12 By notice dated 21 January 2005, Ms Reale purported to exercise a power conferred on her by the trust deed for the Second Trust, by removing Duncan Reale Company as trustee and appointing herself to that office. Her solicitors' covering letter to Duncan Reale Company required the Company, pursuant to its obligations under the trust deed, to do all things necessary to transfer the legal title to the assets of the trust fund, namely 200,000 shares in Cameda Investments, to Ms Reale as the new trustee. The letter said that Ms Reale would be available to attend a directors' meeting at short notice to give effect to the transfer. The letter contained the following explanation: "We are instructed that Mr Duncan has in the last few days excluded Ms Reale and another trusted executive Mr Boyd, from the management of the group and by his conduct is imperilling the business known as IDS which is operated by Box Information Technology Pty Ltd, a wholly-owned subsidiary of Cameda Investments." The letter also requested that, pending the transfer of the shares to Ms Reale, the Company should forthwith take action to ensure that an independent functioning board of directors be appointed to Cameda Investments. 13 Mr Duncan's solicitors responded by writing to Ms Reale's solicitors on the same day. They agreed that steps had been taken to exclude Ms Reale from access to the company bank account and company computers, but they contended that these steps were necessary given Ms Reale's refusal to hand over financial records of Box Australia to Mr Duncan, who was the sole director of the latter company. They alleged that Ms Reale had refused to entertain any sensible discussions or negotiations as to how the business of Box Australia might continue to be conducted in the interests of the shareholders, given the marital breakdown. They alleged that Ms Reale had unilaterally stripped joint bank accounts and company bank accounts. They said they had instructions to institute Family Law proceedings forthwith and to seek injunctive relief to prevent Ms Reale from removing assets from the matrimonial property pool. This is a matter that Boland J found to be significant when she was asked to make interlocutory orders in the Family Court, as noted below (see judgment, para [79]). 14 Mr Duncan's solicitors wrote again to Ms Reale's solicitors on 24 January 2005. They acknowledged that 200,000 of the 400,000 shares issued by Cameda Investments to Duncan Reale Company were held by the Company as trustee for this Second Trust. They said the other 200,000 shares were held by the Company as trustee for the First Trust. Apparently Ms Reale had asserted that another 10 shares had been issued for the benefit of the Second Trust, but Mr Duncan's solicitors said that Mr Duncan was not in a position to acknowledge that this was so. 15 I have mentioned the allegations in the January correspondence so as to make it plain that Mr Duncan and Ms Reale were in bitter conflict at that time. It is unnecessary to trace through subsequent correspondence, and sufficient to say that each party strenuously denied the allegations of wrongdoing made against them. Ms Reale continued to complain about being excluded from business affairs, and on 24 January 2005 she commenced the first of two proceedings in this court, described below. 16 On 28 January Mr Duncan made an Application for Final Orders in the Brisbane Registry of the Family Court, and also made an application for various interlocutory orders. He sought to require Ms Reale to remove herself as trustee of the trust and reinstate Duncan Reale Company, or in the alternative, that she be restrained from exercising her powers as trustee. 17 The first proceeding (No 1190 of 2005) began by originating process filed on 24 January 2005. Ms Reale sought, against Duncan Reale Company as defendant, an order that she be granted leave under s 237 of the Corporations Act to take proceedings in the name of the Company ("the proposed derivative proceeding"). She also sought orders (claims 3 and 4 in the originating process) having the effect that Duncan Reale Company would be required to execute a transfer to her of the 200,010 shares in Cameda Investments held by it as trustee of the Second Trust. 18 The proposed derivative proceeding was to be a proceeding in which Duncan Reale Company would seek against Cameda Investments and Mr Duncan a number of orders to be made under s 233 of the Corporations Act. Section 233 allows the court to make orders in favour of a plaintiff, who has the standing prescribed by s 234, if the plaintiff establishes the matters referred to in s 232, relating generally to oppressive conduct of the affairs of a company. It appears that the allegation was to be that Mr Duncan had acted oppressively in the conduct of affairs of Cameda Investments, entitling Duncan Reale Company, the shareholder of Cameda Investments, to orders that would address the oppression. The orders that were to be sought were orders intended to produce the result that the board of directors of Cameda Investments would consist of one director nominated by Ms Reale, one nominated by Mr Duncan and one independent director nominated by the President of the Institute of Chartered Accountants (Australia). Additionally, an order was to be sought requiring Mr Duncan to compensate Cameda Investments for damage or loss suffered by it because of his oppressive conduct. In the alternative, an order for the winding up of Cameda Investments would be sought under s 461. 19 In their correspondence, the solicitors for the parties disagreed as to whether it was appropriate for proceedings to be prosecuted in this court when there were proceedings in the Family Court that could to address all matters in dispute. This led Mr Duncan to make an application in this court for dismissal or stay of the first proceeding. Both Mr Duncan's application and the originating process came before Hamilton J as Equity Duty Judge on 9 February 2005, and two principal matters were ventilated. 20 First, as to Mr Duncan's application for dismissal or a stay of the proceeding, Hamilton J held ([2005] NSWSC 174, at [5]-[6]) that this court had jurisdiction over the matters in issue in the proceeding having regard to s 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), even if the proceeding constituted a matrimonial cause. As to whether the court ought to exercise the jurisdiction it had concurrently with the Family Court, his Honour pointed out that Box Australia had gone into voluntary administration and there were doubts about its solvency. The interests of Cameda Investments in relation to the voluntary administration (including whether it should provide Box Australia with funds to enable it to continue trading) needed to be attended to, and they had to be dealt with at a time earlier than the next relevant application was due to be heard in the Family Court. He pointed out that the voluntary administration also involved the interests of creditors and employees of Box Australia. Because the voluntary administration raised matters of relative urgency, he declined to dismiss or stay the proceeding. 21 Secondly, as to Ms Reale's application, in the originating process, for leave to proceed under s 237, Hamilton J decided that the application was appropriate to be dealt with in view of the urgency of the situation in Cameda Investments (at [8]). He found, subject to one qualification, that the ingredients of s 237(2) had been established, and made orders granting leave to Ms Reale to commence the proposed derivative proceeding in the name of Duncan Reale Company. The qualification was that he did not regard the ingredients of s 237(2) as established with respect to the proposal to seek an order for compensation against Mr Duncan. His Honour granted Ms Reale leave to bring the derivative proceeding, which he made returnable in the Corporations List, and he stood over the balance of the first proceeding (the application for orders for transfer of shares) to the Corporations List. As to the application for the transfer of shares, he found that there was no urgent need to deal with it and that the matter could "at least for the present, abide the attention of the Family Court" (at [7], [14]). 22 On the question whether there was a serious question to be tried as to the matters of oppression to be raised in the proposed derivative proceeding (s 237(2)(d)), he said (at [12]): "Here it is submitted that, in effect, there is no evidence of deadlock or relevant deadlock in Cameda, because there is no specific evidence of disagreement over decisions relating to that company. I regard this approach as totally unrealistic where the evidence shows the complete exclusion of the plaintiff from the affairs of all the companies and that the husband and wife will not speak to each other and cannot deal with each other about the affairs of the companies. In these circumstances, I am of the view that there are serious questions to be tried as to the deadlock of Cameda and oppression in relation to its affairs." 23 His Honour concluded by observing that "whether the principal proceedings are to be tried in this court or the substance of them dealt with in proceedings in the Family Court, is a question that can await another day". At the time when he made these remarks, 9 February 2005, there was a live dispute between the parties as to whether orders should be made to reconstitute the board of directors of Cameda Investments as a board comprising a nominee of the husband, a nominee of the wife and a nominee of an independent third party, and there was a live question as to whether Duncan Reale Company should be ordered to execute a transfer in favour of Ms Reale of the 200,010 shares held by it as trustee of the Second Trust. Since his Honour reserved costs of the application before him, there was also a live issue as to payment of those costs. 24 The second proceeding in this court, No 1518 of 2005, is the derivative proceeding commenced as a result of Hamilton J's order of 9 February 2005 granting leave to Ms Reale under s 237. It is the proceeding proposed by her, except for the proposed claim against Mr Duncan for compensation, as to which Hamilton J refused leave. 25 The voluntary administration of Box Australia was running concurrently with the proceedings before Hamilton J, a fact that clearly influenced his Honour's decision. A meeting of creditors was convened by the administrators. Ms Reale made an urgent application on 17 February 2005 for the appointment of a receiver to Duncan Reale Company. White J made orders by consent on that day, standing over the application generally with liberty to restore, and noting the agreement of the parties to procure Cameda Investments and Box IT (UK) to vote as creditors to support a seven-day adjournment of the meeting. 26 On 24 February 2005 Boland J in the Family Court in Brisbane made orders restraining Ms Reale from exercising her powers as trustee of the Second Trust to remove Mr Duncan as a beneficiary, or to dispose of or encumber assets of the trust, or to exercise her power to appoint another trustee. Her Honour declined to make an anti-suit injunction to restrain Ms Reale from continuing with the Supreme Court proceedings. She delivered an ex tempore judgment in which (at [13]) she described the consent orders made by Barrett J on the previous day as "effectively resolving the [equity] proceedings". She noted (at [70]) that Barrett J's orders of 23 February had granted the parties liberty to apply for variation or discharge of the orders, and liberty to apply with respect to protection of the assets of Cameda Investments during any period where there was no independent director. She held (at [84]) that the application for an order for transfer of shares could be conveniently and appropriately dealt with in the final property proceedings in the Family Court. But she was influenced by a submission on behalf of Ms Reale that, rather than granting an anti-suit injunction that might put at risk of the comity between courts, it would be appropriate for the Family Court to leave it to the husband to seek to transfer the equity proceedings to the Family Court pursuant to the cross-vesting legislation (at [83], [88]). 27 One of the matters about which the solicitors for the parties corresponded in February 2005 was Ms Reale's claim in the first proceeding for an order that the Duncan Reale Company transfer to her 200,010 shares in Cameda Investments. The claim was based on her removal of Duncan Reale Company as trustee of the Second Trust and her appointment of herself as the new trustee, and the Company's obligation as outgoing trustee to vest the trust property in the new trustee. In their letter of 24 January 2005 Mr Duncan's solicitors acknowledged that 200,000 shares in Cameda Investments were held by Duncan Reale Company as trustee for the Second Trust. They queried the claim for the additional 10 shares, and Ms Reale's solicitors replied on 25 January particularising her claim to those shares. On 25 January 2005 Mr Duncan's solicitors wrote offering to do all things reasonably necessary to enable the shareholding in Cameda Investments to be changed so that 200,010 shares would be held by Duncan Reale Company as trustee for the First Trust and 200,010 shares would be held by Ms Reale as trustee for the Second Trust, subject to an undertaking by Ms Reale not to exercise her powers as trustee except in the ordinary course of business. Such an undertaking proved to be unacceptable to Ms Reale, for reasons explained by her solicitors in their letter of 27 January 2005, having to do with her desire to use the shareholding to prevent oppression by Mr Duncan. But that letter left an opening for further negotiation, which was pursued by Mr Duncan's solicitors in their letter of 11 February 2005. Ms Reale's solicitors replied on 14 February 2005 reiterating that their client would not undertake to use the shares only in the ordinary course of business because such an undertaking impliedly would rule out Ms Reale proceeding to appoint a receiver. 28 There was also correspondence between the solicitors for the parties in February 2005 about Ms Reale's claim that the board of Cameda Investments be reconstituted with an additional independent director appointed by the Institute of Chartered Accountants. Mr Duncan's solicitors suggested, in their letter of 25 January 2005, that the parties and their lawyers have a meeting to establish some form of modus operandi for the companies pending final resolution. In their letter of 11 February 2005, Mr Duncan's solicitors acknowledged the need for some interim arrangement for the companies and trusts in the group, and they said their client was open to the possibility of appointing a third director of the companies to resolve deadlocks, and open also to reaching agreement on critical issues relevant to the conduct of the companies and trusts. By their letter of 14 February 2005, Ms Reale's solicitors said they agreed with the suggestion that a third director be appointed to resolve the deadlock in Cameda Investments and other group companies, and suggested that the third director be appointed by the President of the Institute of Chartered Accountants. 29 Mr Duncan's solicitors took the matter a step further on 16 February 2005, when they sent Ms Reale's solicitors a letter setting out a more formal settlement proposal, according to which Ms Reale and Mr Duncan would do whatever was necessary to cause a third director to be appointed to Cameda Investments, with provision for that director to be nominated by the Institute of Chartered Accountants if they could not agree. On the same day Ms Reale's solicitors responded, suggesting some names for the role of third director, and agreeing to other terms. This process culminated in consent orders made by Barrett J on 23 February 2005. The orders provided for the board of directors of Cameda Investments to comprise a nominee of each of Ms Reale and Mr Duncan and an independent director appointed by a process in which the default power of appointment was with the President of the Institute of Chartered Accountants. 30 A problem arose with these arrangements after the orders had been made. On about 1 March 2005 the Australian Institute of Charted Accountants indicated they would not assist in the appointment of a third director, and therefore Ms Reale's lawyers foreshadowed an application to the court for appointment of a receiver to Cameda Investments, to enable Cameda Investments to vote at the meeting of creditors of Box Australia, which by that time was scheduled for 5 March. Mr Duncan's solicitors wrote on 1 March 2005 setting out a settlement proposal under which Ms Reale would take over the control and operation of Box Australia, subject to certain conditions. The letter put forward some reasons why Ms Reale should not proceed with her application for the appointment of a receiver. Ms Reale's solicitors replied on 3 March 2005, disagreeing with part of the settlement proposal but indicating a willingness to adjourn her interlocutory application for the appointment of a receiver and to cause the adjournment of the meeting of creditors of Box Australia. On 3 March 2005 Campbell J made consent orders varying the orders that had been made by Barrett J on 23 February by postponing their commencement for a short time, and noting the agreement of the parties to procure Cameda Investments and Box IT (UK) to vote as creditors at a meeting of creditors of Box Australia to be held on 4 March 2005, to procure a nine-day adjournment. 31 The equity proceedings were listed for further hearing on 16 May 2005. On 13 April 2005 Mr Duncan's solicitors wrote to Ms Reale's solicitors saying it would appear that the only outstanding issue in the first proceeding was the proposed transfer of 200,010 shares in Cameda Investments from Duncan Reale Company to Ms Reale as trustee of the Second Trust. They said that Mr Duncan would agree to orders for the transfer of those shares provided that in net terms the result was that each of the two trusts would have the same holding. There was no reply to that letter until much later, as noted below. However, on 3 May 2005 Ms Reale's solicitors wrote to Mr Duncan's solicitors drawing attention to the listing of the proceedings for 16 May and proposing an adjournment for six months, "in view of the possibility that orders eventually to be made in the Family Court may not require Duncan Reale to seek the orders in the process". The letter also raised the question whether Mr Duncan would consent to an order for costs in favour of Ms Reale. Mr Duncan's solicitors replied agreeing to an adjournment and saying that an argument on costs would be best left until after the substantive issues had been finalised. 32 The equity proceedings were listed before Hamilton J on 10 June 2005, for directions for a hearing as to the costs of the hearing that had been before him in early February 2005. His Honour declined the application on the basis that the proceedings had not been fully determined. When Hamilton J stood the proceedings into the Corporations List, his orders noted: "Matter may be referred to me for determination of costs reserved on 9 February 2005 when this is appropriate". 33 When the equity proceedings came before Barrett J on 16 May 2005, they were stood over to 14 November 2005. On 14 November 2005 there was no appearance for Ms Reale, and Barrett J stood the proceedings over 20 February 2006. Mr Duncan's solicitors wrote to Ms Reale's solicitors on 18 November 2005, noting Ms Reale's failure to appear at the hearing on 14 November and stating their client's intention to move on a motion that the balance of the first proceeding be removed to the Family Court on the ground that the remaining matters, relating to the transfer of the shares, were "congruent with matters before the Family Court". 34 Finally, on 17 March 2006 Ms Reale's solicitors wrote to Mr Duncan's solicitors setting out, in a separate letter, a proposal for the resolution of the derivative proceeding. The separate letter pointed out that no independent director had been actually appointed pursuant to Barrett J's orders of 23 February 2005, but the trading activities of Box Australia had been "put on a proper basis by the administrator". According to the letter, the administration was then terminated and the business was thereafter conducted by directors appointed by the administrator. The letter said the business had later ceased to trade but Box Australia was continuing to pursue the recovery of debts from customers and suppliers. The letter proposed that any future issues as to the division of the assets of Cameda Investments could be dealt with by the Family Court. In those circumstances, the letter proposed that the consent orders made on 23 February 2005 be discharged and the derivative proceeding discontinued, with the consent of the court under s 240 of the Corporations Act. The letter made an offer regarding costs of the derivative proceeding. 35 Ms Reale's solicitors' covering letter of 17 March 2006 referred to claims 3 and 4 in the originating process for the first proceeding (No 1190 of 2005), the claims for transfer of shares. The covering letter was a response, over 11 months after it had been made, to Mr Duncan's offer (made in his solicitors' letter of 13 April 2005) to agree to orders for the transfer of shares to Ms Reale provided that in net terms each trust would have the same shareholding. The letter said Ms Reale accepted that each trust has an equal shareholding and that the relief she sought in the originating process related only to the shares held by Duncan Reale Company as trustee for "her" trust. The letter made a proposal as to costs of the first proceeding. 36 The two letters of 17 March 2006 were written two days after Mr Duncan had filed interlocutory processes in each of the two equity proceedings seeking orders for the transfer of the proceedings to the Brisbane Registry of the Family Court of Australia. The interlocutory processes filed on 15 March did not refer to the court's power to order the transfer of proceedings under the Corporations Act. They were replaced by interlocutory processes filed in court on 20 March 2006. The relief is now sought pursuant to s 1337H(1) of the Corporations Act, or alternatively under s 5(1)(b) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). **********

Reale v Duncan Reale; Duncan Reale v Cameda Investments

At a glance

Court

Decision date

Before

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Judgment (11 paragraphs)

Legislation Cited (4)

Cases Cited (6)

Cited By (1)