Territory Realty Pty Ltd v Garraway

Federal Court of Australia|2009-07-10|Before: Dundee Beach P, Mansfield J

INTRODUCTION 1 On 1 April 2009 I published reasons for judgment in this matter: Territory Realty Pty Ltd v Garraway [2009] FCA 292 (the primary judgment). On 6 May 2009 I made orders giving effect to those reasons. The only issue that remains to be dealt with is the costs of the proceeding. That is the subject of these reasons. 2 The background facts of this matter are somewhat complicated, and are set out at length in the primary judgment. I do not propose to repeat them, other than to briefly summarise the claims made by the applicants against the respondents, and the result of the application. I shall use the abbreviated descriptions of the parties used in the primary judgment.

THE APPLICANTS' CLAIMS 3 At the start of 1999, Dundee Beach P/L had three equal shareholders: Territory Realty, H & K Earthmoving, and Kendray and Hassall jointly. 4 Territory Realty and its directors Booth and Sanders claimed against the respondents (other than Kendray) in relation to a series of events by which Excess and Bishop Estate first came to acquire at least an equitable interest in nine shares in Dundee Beach P/L on 4 May 1999, and subsequently came to hold 32 of the 48 shares in Dundee Beach P/L by further share transfers on 25 November 2003 and 2 July 2004. The applicants also claimed against Garraway as a director of Dundee Beach P/L and its shareholders Excess and Bishop Estate in relation to the way in which Dundee Beach P/L was run from 4 May 1999 (including in relation to a further issue of shares in 2007). Hassall ceased to be a director of Dundee Beach P/L either directly or through H & K Earthmoving, and H & K Earthmoving also ceased to hold any shares in Dundee Beach P/L. 5 The applicants claimed that each of the share transfers was contrary to the pre-emptive rights which Territory Realty enjoyed as an existing shareholder of Dundee Beach P/L, and sought declaratory relief together with orders correcting the share register of Dundee Beach P/L, and orders that Bishop Estate and Excess held their shares on a constructive trust in favour of Territory Realty. 6 The applicants also claimed that the shareholders participating in the share transfers breached the contract between them and Territory Realty constituted by the Memorandum and Articles of Association of Dundee Beach P/L by failing to comply with the procedure for the transfer of shares specified in the Articles, and that Garraway intentionally and wrongfully interfered with that contractual relationship by procuring or participating in its breach. 7 The applicants further alleged that Garraway, both personally and on behalf of Hassall, and of Dundee Beach P/L, engaged in misleading and deceptive conduct, to the applicants' detriment. 8 The applicants alleged that by a series of decisions, and the implementation of those decisions, the affairs of Dundee Beach P/L over that time were conducted oppressively to Territory Realty as a shareholder in Dundee Beach P/L within the meaning of s 232 of the Corporations Act 2001 (Cth) (the Corporations Act) and orders were sought under s 233 of that Act. Those decisions, and their implementation, included the 2007 share issue, the offer made on 2 May 2007 to purchase the shares of Territory Realty in Dundee Beach P/L at a certain price, and the amount of and payment of management and consulting fees to Excess and Bishop Estate.

THE ORDERS MADE 9 On 6 May 2009 I made a declaratory order as follows: The conduct of the affairs of the seventh respondent by the first respondent, the fifth respondent and the sixth respondent, by reason of the 2007 share issue; the nature and terms of the offer made on 2 May 2007 to purchase the shares of the first applicant in the seventh respondent; and the amount of and payment of management and consulting fees (each of which matters is referred to in the reasons for judgment) was oppressive to, unfairly prejudicial to, or unfairly discriminatory against the first applicant for the purpose of section 232 of the Corporations Act 2001 (Cth). 10 I also made an order in the following terms: The applications for the relief claimed in paragraphs 1 to 10 (inclusive), 11A to 14 (inclusive) and 15 of the further amended application dated 25 September 2007 be dismissed. 11 I made consequential orders for Bishop Estate and/or Excess as the holders of two thirds of the shares in Dundee Beach P/L to have the opportunity to purchase the 16 shares of Territory Realty in Dundee Beach P/L within a specified period of time at a specified price, and if that did not occur, for Territory Realty to have the opportunity to purchase the 16 shares each of Bishop Estate and Excess in Dundee Beach P/L for the same price within a further specified time. In the event that neither opportunity was taken up, the matter is to return to the Court for considering what further orders might be made. 12 In the course of my reasons in the primary judgment, I made adverse findings against certain of the respondents in relation to various conduct, including that the May 1999 share transfers were not made in accordance with the Articles (at [152] of the primary judgment), that Garraway, Excess and Bishop Estate induced Hassall (and H & K Earthmoving) to breach the corporate contract with other members of Dundee Beach P/L (at [158]-[159] of the primary judgment) in relation to the May 1999 share transfers, and that Garraway engaged in misleading and deceptive conduct, by making representations in a telephone conversation, by delivery of a meeting agenda and at the meeting (at [165]-[171] of the primary judgment) and also in relation to the May 1999 share transfers. The three claims to which those findings primarily relate, namely, the claim for damages for breach of contract (confined to the 4 May 1999 share transfers), the claim for damages for the tort of intentionally interfering with contractual relations, and the claim for damages for misleading and deceptive conduct under s 91 of the Consumer Affairs and Fair Trading Act (NT) (the CAFTA) were all brought out of time and required an extension of time under the Limitation Act (NT). I did not find the thresholds for extension of time under the Limitation Act (NT) to be made out, and declined to exercise my discretion under that Act to extend the time within which proceedings might have been brought (see [302]-[306] of the primary judgment). The applicants contended that I should make formal declaratory orders in respect of those adverse findings in any event, but I declined to do so, as I did not think that any purpose would be served by such orders, as I had declined to extend the time within which such claims should be brought (at [319] of the primary judgment). 13 At [305] of the primary judgment, having declined to exercise my discretion to extend the time within which those three claims could have been brought, I observed that the applicants' further claim for orders under s 233 of the Corporations Act traversed not simply the 4 May 1999 share transfer but a range of other conduct of which they complained. I noted that the adverse findings that I had made in relation to the other claims may be relevant to whether relief should be given under s 233 of the Corporations Act so they had that potential significance in any event. Ultimately, however, I did not consider that the 4 May 1999 share transfers gave rise to conduct which I should take into account when deciding whether to make the declaratory order referred to in [9] above or other consequential orders. 14 In deciding that Excess, Bishop Estate and Garraway had conducted the affairs of Dundee Beach P/L in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory against Territory Realty, apart from the matters I took into account, I was asked to make findings adverse to those respondents on a range of other matters. They included: (1) the failure to seek and maintain development approval of the Rainforest Block; (2) the dealings with the Dump Site; (3) the dealings with the School Site; (4) the rezoning of four CP blocks; (5) the lapsing of the existing development approval of a 25 Lot Subdivision; (6) the sale of The Pumphouse Gang shares; (7) the removal of Booth and Sanders as directors of Dundee Beach P/L; (8) the dividend policy; (9) the setting off against the dividend of shareholders' loans; (10) the failure to properly inform Territory Realty of the conduct of the affairs of Dundee Beach P/L; (11) the general conduct of the affairs of Dundee Beach P/L between 1999 and 2005; and (12) the payment of legal fees of certain of the respondents in the defence of this proceeding from the resources of Dundee Beach P/L. 15 I did not find that any of those matters demonstrated conduct on the part of Excess, Bishop Estate or Garraway which informed the decision as to whether they were conducting the affairs of Dundee Beach P/L oppressively to its minority shareholder Territory Realty.

THE POWER TO MAKE AN ORDER FOR COSTS 16 The Court has the discretionary power to make orders for costs pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) and O 62 of the Federal Court Rules. The usual rule is that costs follow the event. Exceptional circumstances may warrant departure from that rule. 17 It is apparent that Territory Realty, Booth and Sanders were successful in obtaining a declaratory order in the terms set out in [9] above, that is, they were successful in establishing the oppression cause of action as against Excess, Bishop Estate and Garraway by virtue of certain conduct, namely, the 2007 share issue, the nature and terms of the 2 May 2007 offer, and the amount of and payment of management and consulting fees. However, they failed to make out many of the grounds of the allegedly oppressive conduct. The applicants also had various findings made in their favour, or adverse to the respondents, or certain of them, as described in [12] above, even though I declined to make declaratory orders to give effect to the adverse findings that I made. 18 Excess, Bishop Estate and Garraway contended that I should approach the issue of costs on an "issue" basis, taking into consideration the applicants' "unsuccessful" claims. They referred to the recent judgment Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 where Finkelstein and Gordon JJ (Rares J agreeing) noted at [5]: Costs are in the court's discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule. 19 They submitted that the conduct of Territory Realty, Booth and Sanders in these proceedings could be likened to the conduct of the applicants in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20, where Young J reduced the costs awarded to the plaintiff by 50%, referring to the "net result which was very much less than that at which they were aiming". They submitted that the applicants' failure not only on many discrete issues relating to the alleged oppressive conduct, but also on discrete causes of action in contract, tort and under the CAFTA, and the various claims founded on the share transfers in 1999, 2003 and 2004 demonstrates that those claims were without merit, yet added substantially to the costs of the proceeding. They submitted that: … more than 75% of the time and effort that went into litigating the applicants' various claims related to causes of action, and discrete oppression issues, on which they were unsuccessful. The effect of the Court's determinations in respect of those claims is that they should never have been made. 20 Excess, Bishop Estate and Garraway referred to the order dismissing the specific parts of the claims for relief as contained in the further amended application (as set out at [10] above), and submitted that the adverse findings made against them in the primary judgment have a "provisional quality about them", namely, that they were steps in a path of reasoning leading to the conclusions that the claims were out of time, and that an extension of time ought not be granted in the circumstances. 21 On the basis of those submissions, Excess, Bishop Estate and Garraway analysed the volume of evidence and submissions referable to the claims that were unsuccessful as a proportion of the whole of the claims, and submitted that on the basis of that analysis, it would be appropriate in the circumstances for Excess, Bishop Estate and Garraway to pay 20% of the costs of Territory Realty, Booth and Sanders, and that Territory Realty, Booth and Sanders should pay 80% of the costs of those respondents. 22 In stark contrast stands the claim for costs of Territory Realty, Booth and Sanders. They seek full costs on an indemnity basis. 23 They rely on Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. Sheppard J there held that the categories of case justifying indemnity costs are not closed, and the question is simply whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on the usual basis. 24 Territory Realty, Booth and Sanders submitted that the entire proceeding turned on the 4 May 1999 share transfer, and that the findings concerning the events of May 1999 were compounded by what they submitted was an "egregious failure and refusal" to make a fair and reasonable offer to purchase the interest of Territory Realty in Dundee Beach P/L. They submitted that the nature of an oppression claim, in the present circumstances, left Territory Realty as the minority shareholder with "no alternative but to capitulate or to litigate", a dilemma which they submitted: … is only compounded by the fact that the majority has control of the company's resources and is thereby in a position not only to starve the minority of the funds needed to litigate but also to access the minority's investment (as well as its own) in the company to resist any litigation.

CONSIDERATION 25 In my judgment, this is an appropriate matter to reflect in a general way the extent to which the respective parties succeeded on particular issues. There were, as the above summary illustrates, a range of discrete issues which were required to be addressed. It was a matter for Territory Realty, Booth and Sanders as to whether they chose to make and maintain the allegations in relation to each of them. 26 It does not follow that the failure to secure relief adverse to any of the respondents in relation to or arising out of the 4 May 1999 share transfers, or the 2003 share transfers or the 2004 share transfers, means that those matters were not properly the subject of evidence. It was appropriate to lead evidence about the original share structure of Territory Realty, and how it came about that by about mid 2004 Excess and Bishop Estate came to be equal shareholders, together in effect holding two thirds of the issued shares in Dundee Beach P/L. It was also appropriate to lead evidence about the dealings between Territory Realty and Garraway (on behalf of Excess and Bishop Estate) prior to the 2007 share issue and the ultimate offer to acquire the shares of Territory Realty in Dundee Beach P/L, and about the evolution of the Dundee Beach development and its particular features and prospects, to inform the significance of that offer. It was also appropriate to lead evidence about the evolution of the Dundee Beach development and its particular features and prospects to provide the foundation for the valuation of the assets of Dundee Beach P/L, as that also was a relevant - and contested - issue once it became appropriate to address the relief to be granted for oppressive conduct. 27 Consequently, I do not accept that the analysis on behalf of Excess, Bishop Estate and Garraway reveals with the clarity for which they contend the extent to which the evidence and submissions related to claims on which Territory Realty, Booth and Sanders were unsuccessful. The "default" analysis, that is the identification of the evidence and submissions specifically relating to the claims on which they were successful and the assumption that all else was quite unnecessary to the orders ultimately made, is one that I do not accept as appropriate. 28 Nor do I accept that the costs relating to the disputed land valuation of the assets of Dundee Beach P/L should be dependent upon whether Excess and Bishop Estate take up the opportunity to acquire the shares of Territory Realty at the specified figure. It was necessary, once it was determined that there had been oppressive conduct by the majority shareholders, to decide upon the appropriate relief. In my view, it was in that context appropriate for Territory Realty, Booth and Sanders to establish the value of its shares, in essence, by the value of the land held by Dundee Beach P/L. That was a contentious issue. Such a valuation was a step in deciding the appropriate form of relief. 29 Neither side secured the outcome for which they contended. But the finding as to the valuation of that land was in excess of that contended for by Excess, Bishop Estate and Garraway, but considerably less than that contended for by Territory Realty, Booth and Sanders. There were three or four separate sections of the land to be valued (one valuer treated two sections together). The main valuation evidence from each side was not dissimilar on the first section; on the second section (the Stage 4 land) I reached a valuation close to that of the valuer called by Excess, Bishop Estate and Garraway; and on the third and fourth sections, I preferred the general approach of the valuer called by Territory Realty, Booth and Sanders although the valuation arrived at was at a much lower figure but still more than double that of the valuer called by Excess, Bishop Estate and Garraway. Overall, the valuation I arrived at was more than $2m more than his valuation. 30 I will reflect in the overall order for costs I make that to some extent Territory Realty, Booth and Sanders did not establish a valuation of that land (the Stage 4 land) significantly greater than that proposed by the valuer called by Excess, Bishop Estate and Garraway, but did so in the other contentious area and overall succeeded in having a valuation determined well in excess of that propounded by those respondents. 31 On the other hand, Territory Realty, Booth and Sanders failed in their claims for breach of contract and for misleading and deceptive conduct, and the associated claim against Garraway, generally dealt with by the orders referred to in [10] above. They also failed in the discrete issues which they contended to be relevant to the oppression claim, as set out in broad terms in [14] above. 32 No "scientific" analysis of the respective time spent on the wider issues is readily made. The "default" approach contended for by Excess, Bishop Estate and Garraway is not, in my view, an appropriate one in the circumstances for the reasons I have given. I propose to adopt a broad brush approach to the analysis of the time spent (referring to evidence and submissions) on the particular discrete issues on which those respondents successfully resisted the allegations. I also make a further allowance for the fact that Territory Realty, Booth and Sanders did not succeed on a number of their claims. However, as I have indicated, I accept that much of the evidence they adduced relating to them was appropriately adduced in relation to the claim on which they did succeed. I also have taken into account the extent of the contest on the valuation of the land of Dundee Beach P/L and its outcome. 33 I have come to the view that a fair result, balancing all those factors, is that Territory Realty, Booth and Sanders should recover 50% of their taxed costs from Excess, Bishop Estate and Garraway. That figure is arrived at on the basis that, on the discrete issues on which those respondents succeeded and to an extent on the other matters I have identified, they should recover their costs, and that on the other hand Territory Realty, Booth and Sanders should recover costs of the claim on which they succeeded, having regard to the nature and extent of the relevant and contested evidence on which findings favourable to them were made. Rather than impose on the parties, and on a taxing officer, the task of identifying each category or item of work which falls within those separate approaches, I have offset in a general way a percentage of costs otherwise awarded to those respondents by reducing the percentage of costs I have awarded to Territory Realty, Booth and Sanders. 34 I have taken into account in reaching that proposed costs order that Territory Realty, Booth and Sanders to a degree were unaware of the full nature of the May 1999 share transfers until shortly before the hearing. That conduct was the genesis of the involvement of Excess and Bishop Estate in Dundee Beach P/L. Some other relevant evidence emerged only during the hearing. The open proposal made by senior counsel on behalf of Excess, Bishop Estate and Garraway in Court on 18 February 2008, although well in excess of that which had previously been offered to Territory Realty for its shares in Dundee Beach P/L, was still quite a lot less than the value of its shares which I reached. 35 I do not propose to order that the 50% of costs to be taxed be taxed on an indemnity basis. I do not consider that the finding of oppressive conduct, or the bases for it, should lead to an order for indemnity costs. Although it is no doubt true that a minority shareholder is often in a financial position where the securing of a fair value for those shares is itself a challenge and that resort to litigation is sometimes its only avenue, it does not routinely follow that - if it succeeds - indemnity costs should also be ordered. I do not regard the conduct of the proceedings by Excess, Bishop Estate and Garraway to have been so egregious as to itself warrant an award of indemnity costs. In many respects, their position about the management of Dundee Beach P/L was vindicated. The late disclosure of information, whilst quite inappropriate, did not ultimately significantly prolong the hearing or disadvantage Territory Realty, Booth or Sanders. I am not prepared to infer that it was done as a strategic approach to the claim with a view to forcing settlement at an inappropriate figure. Nor do I regard the adverse findings I have made about the reliability of certain of the evidence given by Garraway as itself warranting such an order. 36 It is appropriate at present that no order for costs should be made against Dundee Beach P/L. It was the company the subject of the oppression action, where the persons and entities who have been found to have engaged in the oppressive conduct were its majority shareholders or, in the case of Garraway, its director. 37 I also propose at this point to make no order for costs against H & K Earthmoving, or Hassall. They played little role in the proceeding. They were represented by the same solicitors and counsel. In the event that the costs order against Excess, Bishop Estate and Garraway is not satisfied, I give leave to Territory Realty, Booth and Sanders to renew their application for costs against those other respondents. If Excess, Bishop Estate and Garraway also seek some contribution to the costs from those other respondents, I give leave to them to apply, to be exercised within 28 days of the date of these reasons. 38 I order that Excess, Bishop Estate and Garraway pay to Territory Realty, Booth and Sanders 50% of their costs of the proceedings to be taxed. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate: Dated: 10 July 2009 Counsel for the Applicants: RJ Whitington QC and I Robertson SC

Solicitor for the Applicants: Cridlands MB Lawyers

Counsel for the Respondents: M Maurice QC and G Clift

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Judgment (8 paragraphs)

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