Winpar Holdings Limited v Goldfields Kalgoorlie Limited

Supreme Court of NSW|2000-08-17|Before: Santow J

INTRODUCTION 1 Following my earlier judgment ([2000] NSWSC 728) I have to consider how I should deal with costs where none of the Plaintiff's objections to a selective reduction of capital eliminating a minority succeeded. This is in circumstances where there has as yet been no reported decision in the changed legislative context for reductions of capital that has prevailed since the Company Law Review Act 1998, to which my earlier judgment refers. 2 There are really three possibilities.

(i) that costs should follow the event and be awarded to the Defendant, which was successful in resisting the Plaintiff's challenge under s1324(1) and (1B) of the Corporations Law ;

(ii) that costs should be awarded to the unsuccessful Plaintiff as objector, as would have concededly been the case with a shareholder's scheme of arrangement; this is on the basis that a selective reduction of capital performs a functionally equivalent purpose of bringing about the compulsory elimination of a minority, and now mirrored also by the regime for compulsory acquisition under s701 following a conventional takeover in the new s664F(4) where the offeror now pays the dissentient's costs;

(iii) that no cost order should be made. 3 I have concluded that the proper course in the present circumstances is to award costs to the Plaintiff as objector, it not being in issue that had the selective reduction of capital proceeded as a scheme of arrangement, the objections raised would have satisfied the requirement for costs to be awarded where the objections were not frivolous or without substance and, I would add, were put with reasonable economy. 4 I am influenced in that conclusion firstly by the functional equivalence of a selective reduction of capital. It would be anomalous if the choice of process placed objectors in a materially worse position because the proponent of a proposal for compulsory acquisition chose to proceed by selective reduction of capital rather than conventional takeover or scheme of arrangement. 5 The Defendant would have had a stronger case in invoking the practice applicable to compulsory acquisition following a conventional takeover under s701 of the Corporations Law had there not been the legislative change made by s664F(4). That provides that "SECT 664F The Court's power to approve acquisition …… (4) The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs."

6 That change was introduced with the amendments made in 1999 under the CLERP Act. The Defendant argued that the absence of an equivalent provision gave rise to an expressio unius argument. However, that absence is explicable by the fact that in the case of compulsory acquisition under s701 there has been a long history of cost orders against unsuccessful s701 (or equivalent) applicants as illustrated by the following cases, ASIC v DB Management [2000] HCA 7, 18 ACLC 166; Elkington v Shell (1999) 32 NSWLR 11; Re Allied Queensland Coalfields Ltd; Super John Pty Ltd v Marsford Investment Pte Ltd (1997) 23 ACSR 427; Gambotto v Resolute Samantha (1995) 13 ACLC 1564; Brierley v Dextran (1991) 9 ACLC 30; Cockle v Carlingford Nominees Ltd (1989) 4 NZCLC 65; Williams v United Dairies (1986) 4 ACLC 275. 7 That practice is reflected in the decision in Elkington v Shell at 24 where Sheller JA (with whom Meagher JA agreed) made the following observations: "In Re Deans; Re Stevens Group Properties Ltd (1986) 3 NZCLC 99,620; [1986] 2 NZLR 271 Hardie Boys J found that an objection by a dissenting shareholder had no real merit. At NZCLC 99,626; NZLR 278, on the question of costs, he said that while he did not regard the merits as warranting a recovery of costs by the dissenting shareholder 'the possibility of an objection, even one without commercial or legal substance, must be a distinct likelihood when the subject of a takeover bid is an old established company in which people have close personal interests. From the outset, the offeror will have considered whether to allow dissentients to retain their shares, or to seek to acquire them compulsorily. The likely costs will surely be taken into account when the exercise is embarked upon. They will be part of the costs of the takeover. It would thus be quite inappropriate to award costs in favour of the offeror. I therefore consider that there should be no order as to costs.' This practice has not always been followed in Australia; see for example Williams & Ors v United Dairies Ltd (1986) 4 ACLC 275 at 280 and Brierley & Anor v Dextran Pty Ltd & Ors (1991) 9 ACLC 30 at 42-43; (1990) 3 ACSR 455 at 469-470. It is not suggested and there is nothing to suggest that McLelland J did not appropriately exercise his discretion in regard to costs. However the costs of this appeal raise different considerations. The appellant had the opportunity to ventilate his objection to the compulsory acquisition of his shares in court. His application failed and he was not order to pay costs. He appealed and on the appeal has failed for the same reason he failed before McLelland J. He demonstrated no error in McLelland J's judgment. I see no reason why he should not like any other unsuccessful appellant pay the costs of the successful respondent which he has brought before this Court; compare Harris v Skevington [1978] 1 NSWLR 176 at 188C."

8 Clearly s664F(4) was needed to reverse that result in the case of compulsory acquisition following conventional takeovers. 9 In contrast, when one comes to the selective reductions of capital regime it reflects a long history of cost orders being made in favour of objectors as illustrated by the decision of Hansen J in Quatro Limited v Argo Investments & Ors (1999) 32 ACSR 480 where at 484 he said "….. it is apparent from the cases that objectors, even if not parties, have been able to act in a manner akin to being a party and as such have taken steps such as requesting the production of documents, calling evidence - even expert evidence, and cross-examining witnesses. In other words, objectors have participated in a forensic process on confirmation applications without, in the above cases, being a party or being required to pay costs."

10 While it is true that the new regime applicable to selective reductions of capital has removed the requirement of court approval, this is only in the context where there is no objector at all. The moment an objector seeks to invoke s1324 of the Corporations Law, the proponent of the selective reduction of capital has, as in a scheme of arrangement, the reversed onus of establishing its fairness in accordance with the criteria set out earlier in s256B and C of the Corporations Law. In applying those criteria, as I said in my earlier judgment, the regime applicable to conventional takeovers exerts an interpretive influence favouring a uniform approach, reflecting the functional equivalence of the various statutory means for acquisition of minorities. Just as s667C exerts such influence so to should s664F(4). This is more particularly as it does so in a context where the pre-existing statutory regime applicable to reductions of capital allowing objectors their costs has not been reversed by statute. The result will be that a similar cost outcome can be expected ordinarily in each of these three functionally equivalent modes of compulsorily acquiring a minority; conventional takeover, scheme of arrangement and selective reduction of capital.

ORDERS 11 I have ordered that the costs of the Plaintiff be paid by the Defendant with other associated orders in the attached Short Minutes of Order. In so doing, I do not wish it to be understood that courts will automatically made cost orders in favour of unsuccessful objectors. There must be some limit based upon the reasonable plausibility of submissions and the absence of illegitimate time wasting, requiring some economy of presentation. For the principles applicable to objectors see Re NRMA Limited (2000) 33 ACSR 595 at 608-9. None of that was at issue here. But courts should not encourage waste of court time and resources with objections that have no real substance, by excessive lenience with cost orders. **********

Last Modified: 09/27/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Winpar Holdings Limited v Goldfields Kalgoorlie Limited [2000] NSWSC 855 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3125/00 HEARING DATE(S) : 17/08/00 JUDGMENT DATE : 17 August 2000

COUNSEL : S Blanks (Sol.) (Plaintiff) M Oakes, SC (Defendant) SOLICITORS : Stephen Blanks & Associates (Plaintiff) Allen Allen & Hemsley (Defendant) CATCHWORDS : CORPORATIONS - Selective reductions of capital to acquire minority - Objectors allowed costs on similar principles to scheme of arrangement and now compulsory acquisition following conventional takeover - Preclusion of recovery where objection frivolous or time wasting. CLERP Act 1999. LEGISLATION CITED : Company Law Review Act 1998 Corporations Law s701; s664F(4) Re Allied Queensland Coalfields Ltd ASIC v DB Management [2000] HCA 7, 18 ACLC 166 Brierley v Dextran (1991) 9 ACLC 30 Cockle v Carlingford Nominees Ltd (1989) 4 NZCLC 65 CASES CITED : Elkington v Shell (1999) 32 NSWLR 11 Gambotto v Resolute Samantha (1995) 13 ACLC 1564 Re NRMA Limited (2000) 33 ACSR 595 Quatro Limited v Argo Investments & Ors (1999) 32 ACSR 480 Super John Pty Ltd v Marsford Investment Pte Ltd (1997) 23 ACSR 427 Williams v United Dairies (1986) 4 ACLC 275 DECISION : Defendant to pay costs of Plaintiff, the unsuccessful objector.

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