Court of Appeal (WA)|2012-12-18|Before: Mr P, Ms J, Murphy JA, Commission J, Lure P, Martin J

YARA AUSTRALIA PTY LTD -v- OSWAL [2012] WASCA 264 (18 December 2012)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : YARA AUSTRALIA PTY LTD -v- OSWAL [2012] WASCA 264

YARA PILBARA HOLDINGS PTY LTD (FORMERLY BURRUP HOLDINGS LTD)

YARA PILBARA FERTILISERS PTY LTD (FORMERLY BURRUP FERTILISERS PTY LTD)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : OSWAL -v- YARA AUSTRALIA PTY LTD [No 3] [2011] WASC 255

Practice and procedure - Application for summary dismissal of appeal or permanent stay - Whether matters raised on appeal irrelevant - Whether appeal hypothetical or lacking in practical utility - Indemnity costs

First-named Seventh Respondent : Mr K J Mony De Kerloy & Mr S J Dundas

Second-named Seventh Respondent : Mr K J Mony De Kerloy & Mr S J Dundas

Third-named Seventh Respondent : Mr K J Mony De Kerloy & Mr S J Dundas

First-named Seventh Respondent : Herbert Smith Freehills

Second-named Seventh Respondent : Herbert Smith Freehills

Third-named Seventh Respondent : Herbert Smith Freehills

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564

Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225

Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397

Metcalf v Permanent Building Society (1993) 10 WAR 145

Oswal v Yara Australia Pty Ltd [No 3] [2011] WASC 255(S)

Quancorp Pty Ltd v MacDonald [1999] WASCA 101

Shire of Yarra Ranges v Russell (2009) 25 VR 560

1 McLURE P: I agree with the costs orders proposed by Murphy JA. These are my reasons for that agreement and for dismissing the seventh respondents' application to dismiss or permanently stay the appeal.

2 The legal basis for the application was in dispute. The seventh respondents (the Receivers) contended that there were no longer any issues in controversy in the appeal that were of real, practical significance and thus the court had the power to summarily dismiss the appeal, relying on cases such as Shire of Yarra Ranges v Russell (2009) 25 VR 560 [17] - [34]. There are various formulations of the test, being whether issues are 'moot, hypothetical or academic' or of 'no practical utility'. As the case law demonstrates, the power is very rarely exercised and, when it is, there is often a material change of circumstances in the period between the decision at first instance and the hearing of the appeal.

3 The appellant (Yara) contended that this court does not have the power or jurisdiction to dismiss an appeal on that basis. The absence of such a power would be surprising. However, it is unnecessary to determine that issue because, on the assumption that the court has the power, the application fell well short of the high threshold for dismissal.

4 The background facts are complex. It is sufficient for present purposes to note the following. Yara has appealed from answers given by Kenneth Martin J in an action (the Action) commenced by the second respondent (Mrs Oswal) to preliminary questions of law relating to the proper construction of a Shareholders' Deed dated 24 March 2008 and a Share Sale Agreement dated 19 September 2008. Mrs Oswal and the Receivers have cross-appealed.

5 As at the date of the Shareholders' Deed, Yara and the second respondent (Mr Oswal) in his capacity as trustee of the Burrup Trust (the Burrup Trust) were the sole shareholders in the third respondent (BHL), which was the holding company of the fifth respondent (BFPL).

6 Under the Shareholders' Deed, Yara and the Burrup Trust had the right to appoint 'Nominee Directors' to BHL and BFPL. At board meetings, Nominee Directors had voting rights equal to the number of shares held by the nominating shareholder. Other directors were entitled to one vote.

7 By 18 September 2008 at the latest, Mr and Mrs Oswal in their personal capacities each became the legal and beneficial owner of 35% of the issued shares in BHL, being the shares formerly held by the Burrup Trust. Mr Oswal sold 5% of his shareholding to Yara under the Share Sale Agreement.

8 The preliminary questions included whether the effect of the Share Sale Agreement was to assign to Mr and Mrs Oswal the Burrup Trust's rights under the Shareholders' Deed to nominate and appoint Nominee Directors and the voting rights of such directors.

9 The Australia and New Zealand Banking Group Ltd (ANZ) had advanced loans exceeding US$537 million to entities controlled by Mr Oswal (the loans). That indebtedness was secured by, inter alia, a share mortgage in respect of Mr Oswal's 30% shareholding in BHL and a share mortgage in respect of 7.5% of Mrs Oswal's shareholding in BHL. In addition, there was an 'Escrow Process Deed' between Mrs Oswal and ANZ dated 1 February 2010 which permitted ANZ to sell Mrs Oswal's remaining 27.5% shareholding in BHL and use the proceeds of sale to repay the loans.

10 On 16 December 2010 the Receivers were appointed as joint and several receivers and managers of all Mr Oswal's BHL shares and all Mrs Oswal's mortgaged shares. All of Mr and Mrs Oswal's BHL shares (totalling 65% of all BHL shares) were sold on 1 February 2012 to Yara and Apache Fertilisers Pty Ltd (Apache). The receivership of the BHL shares terminated on the same date. One of the Receivers (the third-named seventh respondent) deposed in an affidavit sworn on 2 May 2012 that the right to nominate and appoint Nominee Directors with their associated voting rights was critical to the value and saleability of the Oswals' shares. He also deposed to the fact that shortly after the sale of the BHL shares, Yara and Apache entered into a new shareholders' deed which now governs the arrangements between them as shareholders of BHL. The existence of the new shareholders' deed was the basis for his sworn belief that the Action (and the appeal) had become theoretical.

11 The relief sought by Mrs Oswal in the Action includes a declaration that the Oswals are entitled under cl 5(b) of the Share Sale Agreement to appoint Nominee Directors of BHL; that a Mr Sodum was validly appointed by Mrs Oswal as a director of BHL on 22 November 2010; and that resolutions of the board of BHL on 17 December 2010 to suspend Mr Oswal as managing director and to appoint two new directors of BHL are invalid. In the alternative, Mrs Oswal seeks an order for rectification of cl 5(b) of the Share Sale Agreement or an order under s 233 of the Corporations Act 2001 (Cth) for oppressive conduct in the affairs of BHL.

12 The primary judge construed the agreements as giving the Oswals the right to jointly appoint up to three Nominee Directors who could vote their joint shareholding of 65% of the shares in BHL. However, the right was held to be conditional upon the Oswals entering into deeds of assumption to the Shareholders' Deed. I infer the finding that the right was conditional had the effect of undermining the contractual basis for Mrs Oswal's claims for relief.

13 Mrs Oswal has also commenced proceedings in the Supreme Court of Victoria seeking, inter alia, the setting aside of her share mortgage and the Escrow Process Deed and the return of her BHL shares, claiming duress on the part of ANZ. Mrs Oswal also seeks damages against Yara for the alleged conversion of the shares in BHL sold to it by ANZ and the Receivers on her behalf.

14 As a result of the primary judge's answers on the construction issues, the Receivers in August 2012 moved for the dismissal of all Mrs Oswal's claims in the Action on the basis that they were now theoretical. The primary judge refused the application on the ground that it would be premature to terminate Mrs Oswal's action or Yara's counterclaim: Oswal v Yara Australia Pty Ltd [No 3] [2011] WASC 255(S) [7]. There is no appeal from that decision. Yara's counterclaim is for declarations that (1) the Sodum appointment was invalid; (2) the 17 December resolutions are valid; (3) board resolutions in 2005 and 2010 to pay a fee to the Burrup Trust or Mr Oswal pursuant to a Project Loan Asset Swap Agreement (PLAS) are invalid; (4) a resolution to take recovery proceedings in relation to PLAS payments is valid.

15 Yara says those remain actual controversies. Moreover, it says that in the event Mrs Oswal succeeds in her claims in Victoria against Yara and the Receivers to set aside the sale of her shares, there will be actual controversies as to (i) the rights of the parties under the Shareholders' Deed and Share Sale Agreement to appoint Nominee Directors to the boards of BHL and BFPL and the voting rights of those directors; and (ii) the quantum of damages to which Mrs Oswal may be entitled if she succeeds in her conversion claim. The Receivers' evidence supports the existence of a direct relationship between the construction issues and the value of Mrs Oswal's shares.

16 The Receivers' application is without merit. The primary judge has given binding answers as to the proper construction of two agreements to which Yara is a party; those answers are relevant to the validity of the appointment of a director of a public company and the validity of

resolutions of its board; those answers are also directly relevant to the grant of relief sought by Mrs Oswal and Yara in the Action, which is continuing. Against that backdrop, it is impossible to sustain a claim that the issues in the appeal have no real, practical significance.

17 Moreover, the fact that Yara and Apache have entered into a new shareholders' agreement does not alter the position. The new shareholders' agreement does nothing to alter or affect the legal rights and duties of the parties to the Shareholders' Deed and the Share Sale Agreement in the three and a half year period in which they regulated the relationship inter se of the former shareholders. The most that can be said is that with the sale of the Oswals' shares in BHL and the new shareholder agreement, any victory for Mrs Oswal (not Yara) in the Action is likely to be pyrrhic. But even that is not correct. There is clearly a close substantive and strategic connection between the Action and Mrs Oswal's Victorian action.

18 I agree with Murphy JA that indemnity costs are appropriate because the application was commenced and continued in circumstances where the Receivers, properly advised, should have known that they had no chance of success.

19 The parties to the Action must move for and extract orders made upon the preliminary issues the subject of this appeal. Metcalf v Permanent Building Society (1993) 10 WAR 145 does not support any contrary proposition.

20 MURPHY JA: On 16 October 2012, the court dismissed an application by the seventh respondents to dismiss the appeal or stay it permanently 'without prejudice to the rights of any party to pursue the appeal in the event that the issues are enlivened'.

21 The application sought, in effect, a summary disposition of the appeal without a determination on the merits. Nevertheless, it was not contended that the appeal, or any ground of it, should be struck out on the basis that it did not have a reasonable prospect of succeeding within the meaning of pt 5 r 43(2)(f) and r 43(2)(g)(i) of the Supreme Court (Court of Appeal) Rules 2005 (WA). The application was resisted by the appellant and the first respondent.

22 The application was, in my view, misconceived and had no possible prospect of success. The disposition of the application was not assisted by the failure of the seventh respondents to address, in chief, in any serious way, the issues necessarily raised by their application.

23 In the proceedings below, Kenneth Martin J determined specific preliminary issues concerning the proper construction and effect of certain instruments which governed or affected the voting rights attached to certain shares in a public company, Burrup Holdings Ltd, for a period of about four years. The shares in question were property over which the seventh respondents alleged they had been appointed receivers by a bank. The seventh respondents were given leave to intervene in the proceedings below.

24 Certain preliminary issues were determined adversely to the appellant, following which this appeal was properly instituted. The first respondent (the plaintiff in the action below) has also appealed, and the seventh respondents have also filed a cross-appeal, although they now say that this should also be stayed or dismissed along with the remainder of the appeal.

25 There has not yet been a final disposition of all of the issues in the proceedings below. The proceedings also included claims with respect to estoppel, rectification and oppression allegedly relevant to the exercise of the voting rights attached to the shares, which remain to be determined.

26 In the meantime, the shares in question were sold by the seventh respondents to the appellants and another party, and the seventh respondents no longer claim any interest in them, and contend that their alleged receivership has concluded. Following this event, the seventh respondents applied to Kenneth Martin J for a complete dismissal of the action, notwithstanding that the other issues remained to be tried. Kenneth Martin J refused that application: Oswal v Yara Australia Pty Ltd [No 3] [2011] WASC 255(S). In that application, like this, the seventh respondents did not contend that the claims with respect to the remaining issues had no prospects of success. Nor, for example, was O 20 r 19 Rules of the Supreme Court 1971 (WA) invoked. There has been no attempt to seek leave to appeal that interlocutory decision by Kenneth Martin J. The seventh respondents have merely, in effect, replicated, in this court, the same application which failed before the primary judge.

27 Although the seventh respondents accept that the appeal raises issues as to the validity of the appointment of a director to the board of the public company, and the validity of certain (alleged) board resolutions in October and December 2010, they nevertheless contend that these matters should now be judged as 'irrelevant' and of no significance, and that the appeal thereby lacks utility. The seventh respondents referred in their written submissions in this regard to Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 582 where Mason CJ, Dawson, Toohey and Gaudron JJ observed that:

[D]eclaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have a 'real interest' and relief will not be granted if the question is 'purely hypothetical', if relief is 'claimed in relation to circumstances that [have] not occurred and might never happen' or if the Court's declaration will produce no foreseeable consequences for the parties.

28 It is plain that the subsequent sale of the shares cannot affect the determination of the legal issues which were in dispute concerning the conduct of the company prior to the sale of the shares. The suggestion that the observations in Ainsworth v Criminal Justice Commission apply to render the appeal irrelevant, is misconceived. Those observations apply to a claim for declaratory relief. Nor does the seventh respondents' reference in their oral submissions to Shire of Yarra Ranges v Russell (2009) 25 VR 560 [17] - [34] assist them. In this case, findings have already been made as to the proper construction of certain instruments, the meaning and effect of which were in actual controversy between the parties below and which related to the propriety of certain conduct by the organs of the public company over a three to four year period. The parties most closely affected include the appellant (a shareholder at the time and currently) and the first respondent (who asserted an entitlement to certain voting rights attached to shares). It is plainly wrong to suggest that the court would, in a summary fashion, on the seventh respondents' application, decide that these matters are of no relevance to the litigants affected by the determinations made by Kenneth Martin J. No sound basis for the contention that these matters were 'irrelevant' was demonstrated and the seventh respondents' submissions proceeded, in part, in the absence of evidence.

29 The unsatisfactory nature of the relief sought by the seventh respondents was aggravated, not ameliorated, by the vague proposal that the dismissal or stay should in effect be reversed and the appeal revived, if the 'issues' should in some unspecified fashion become 'enlivened'.

30 A further development which has arisen is that the sale of these shares by the seventh respondents has itself led to other litigation in Victoria, in which the first respondent has commenced proceedings against, amongst other persons, the seventh respondents, the appellant and certain other parties. The first respondent challenges, in effect, the seventh respondent's title to the shares and alleges, amongst other things, that the sale constituted a conversion of the shares. In those proceedings, the first respondent claims damages, including against the appellant. The amount claimed against the appellant is in the order of $890 million. In those proceedings, the appellant has pleaded that if the first respondent is entitled to conversion damages against it, then on the proper construction of one of the instruments the subject of this appeal, the shares did not carry the significant voting rights which Kenneth Martin J had found that they carried, and that any director appointed by the holders of such shares would only have nominal minority votes on the board of directors of the company. The appellant contends that these matters are material to the issue of quantum in the Victorian proceedings. It also contends that it is, at least potentially, at risk in the Victorian action as to an issue estoppel arising from Kenneth Martin J's judgment, with respect to the rights attaching to the shares unless the appellant can succeed in this appeal. The seventh respondents nevertheless allege, in effect, that this court should determine in this interlocutory application that the voting rights attaching to the shares would have no impact on the quantum in the Victorian proceedings. Again, the substance of the contention is misconceived. For her part, the first respondent alleges, inter alia, that if she is successful in setting aside the sale, and recovers the shares, the nature and scope of her alleged management participation rights would be determined by the appeal from Kenneth Martin J, including her alleged ability to exercise those rights without the need to execute a further instrument. On these points alone, the suggestion that the appeal lacks utility is manifestly hopeless.

31 For these reasons, I joined in the dismissal of the application by the seventh respondents to dismiss the appeal or stay it permanently.

32 The appellant sought an order for indemnity costs against the seventh respondents. It tendered correspondence to the effect that all of the arguments relied upon to resist the application had been expressly raised beforehand with the solicitors for the seventh respondents.

33 There must be some special or unusual feature of the case to warrant an award of indemnity costs: Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225, 233. The categories of cases in which an indemnity costs order may be made are not closed: Colgate-Palmolive Co v Cussons (233). In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397, 401, Woodward J said that indemnity costs were appropriate where the action 'has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success'. As Pullin J observed in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [25], an order for indemnity costs may be seen as a 'mark of disapproval on the part of the court about the improper or unreasonable conduct of litigation'. It is sufficient to enliven the discretion to award indemnity costs that, for whatever reasons, a party persists in what should on a proper consideration seem to be a hopeless case: Quancorp Pty Ltd v MacDonald [1999] WASCA 101 [6].

34 In my view, from the moment the application was filed, the seventh respondents, properly advised, should have known that the application had no chance of success. Moreover, it is appropriate to mark with disapproval the seventh respondents' conduct in bringing and maintaining the application.

35 There should be an order that the seventh respondents pay all the costs incurred by the appellant of and incidental to the application except insofar as they are of an unreasonable amount, or have been unreasonably incurred, so that subject to the above exceptions, the appellant is completely indemnified by the seventh respondents for its costs of the application. The first respondent did not seek an order for indemnity costs, and the usual costs order should apply with respect to the first respondent, ie the seventh respondents should pay the first respondent's costs of and incidental to the application to be taxed if not agreed.

Court (Court of Appeal) Rules 2005

YARA AUSTRALIA PTY LTD -v- OSWAL [2012] WASCA 264 (18 December 2012)

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Judgment (59 paragraphs)

YARA AUSTRALIA PTY LTD -v- OSWAL [2012] WASCA 264 (18 December 2012)

Legislation Cited (1)

Cases Cited (6)