FEDERAL COURT OF AUSTRALIA

Arkin v Tridon Australia Pty Limited [2003] FCA 1386

Corporations Act 2001 (Cth) s 290, 290(4)(a)

Arkin v Tridon Australia Pty Limited (2002) 43 ACSR 610 referred to

Arkin v Tridon Australia Pty Limited [2003] FCA 1372 cited

Australian Securities Commission v Australian Home Investments Ltd (1993)116 ALR 923 referred to

Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 referred to

Edutainments Pty Ltd v JMC Pty Ltd [2003] FCA 1253 cited

One.Tel Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227 referred to

Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 referred to

HARRY LEE ARKIN v TRIDON AUSTRALIA PTY LIMITED

N 3016 OF 2002

HELY J

2 DECEMBER 2003

SYDNEY

THE COURT ORDERS THAT:

1.         There be no order as to the costs of these proceedings subject to the following provisos:

(a)        this order does not displace any orders for costs otherwise made in the proceedings, and in particular the costs already ordered in favour of Mr and Mrs Lennox, and the costs orders made by me in relation to the motions filed by Mr Arkin and TAPL on 28 July 2003; and

(b)        TAPL should pay Mr Arkin’s costs of the proceedings in relation to the assertion by TAPL of the ‘threshold issues’ referred to in my earlier judgment, the application to stay the proceedings pending the determination of those threshold issues (including the costs of the hearing on 9 December 2002), and the filing of evidence by either party in relation to those issues (whether filed before or after 12 November 2002) as well as any costs incurred by Mr Arkin in relation to TAPL’s outline of submissions dated 4 February 2003.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     In these proceedings Mr Arkin sought orders pursuant to s 290 of the Corporations Act 2001 (Cth) that he and his nominee, Mr David Watson, should be permitted to inspect the financial records of Tridon Australia Pty Ltd (‘TAPL’).  The background to the litigation is set out in a judgment which I delivered on 24 December 2002: Arkin v Tridon Australia Pty Limited (2002) 43 ACSR 610.

2                     After the delivery of that judgment, I was informed that the proceedings had been settled.  On 7 February 2003 I made orders by consent, and noted undertakings to the Court which implemented that settlement.  The general effect of those orders and undertakings insofar as is currently relevant, is that Mr Arkin and Mr Watson were to be at liberty to inspect the financial records of TAPL.  A copy of Mr Watson’s report was to be made available to TAPL, but was not to be provided to any other person without the leave of the Court.

3                     Order 4 is as follows:

‘4.        Costs to date reserved with the exception of any costs orders already made in favour of Mr and Mrs Lennox.’

I have before me a notice of motion filed on behalf of Mr Arkin on 30 April 2003 in which he seeks orders that TAPL should pay his costs of these proceedings to the date of the motion, and that these costs should be on an indemnity basis.

4                     It is common ground that in circumstances such as these the Court has jurisdiction to make a costs order without proceeding to a hearing on the merits, that being a course which neither party wishes to pursue: Australian Securities Commission v Australian Home Investments Ltd (1993) 116 ALR 523, 530; Edutainments Pty Ltd v JMC Pty Ltd [2003] FCA 923.

5                     If both parties acted reasonably in commencing and defending the proceedings, the proper exercise of the discretion will usually result in no order being made as to costs, except in the unusual case where one party was almost certain to have succeeded if the matter had been fully tried: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 624-625.  A distinction must be drawn between cases under which one party, after litigating for some time effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side had simply won, no issue remains between the parties except that of costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227, 231-232.

6                     In the present case, apart from the question of costs, the ‘settlement’ left outstanding the question of whether Mr Arkin should be at liberty to provide Mr Watson’s reports to ACD Tridon Inc (‘ACDT’), that being a matter the subject of liberty to apply.  A motion seeking that liberty was filed by Mr Arkin on 28 July 2003 and is the subject of a separate judgment: Arkin v Tridon Australia Pty Limited [2003] FCA 1372.

7                     The circumstances surrounding the institution of these proceedings are set out in my previous judgment under the heading ‘Inspection is sought of TAPL’s financial records’.  In those circumstances, Mr Arkin acted reasonably in instituting these proceedings.

8                     TAPL opposed the application.  Its grounds of opposition extended over many pages.  Stripped to their essentials, the grounds asserted (mis)conduct on the part of Mr Arkin from which an inference should be drawn that Mr Arkin was seeking access to the financial records of TAPL for an improper purpose, namely to assist ACDT in its dispute with TAPL which was then the subject of litigation pending in the Supreme Court of NSW.  Whilst Mr Arkin denied that this was so, I do not think that TAPL was acting unreasonably in resisting inspection on that ground or, perhaps more appropriately, in seeking to have orders made under s 290(4)(a) of the Corporations Act limiting the use which Mr Arkin and Mr Watson might make of information obtained during the inspection.

9                     The position changed on 7 November 2002, when undertakings were given to the Supreme Court by ACDT that it would not seek to obtain information concerning the affairs of TAPL from Mr Arkin or Mr Watson without the leave of the Supreme Court, and by Mr Arkin that he would not disclose any information concerning the affairs of TAPL to any person subject to the further order of the Federal Court.

10                  By letter of 12 November 2002 the solicitors for Mr Arkin offered to proffer similar undertakings to the Federal Court.  They also stated that the broad purpose of the inspection by Mr Watson is to obtain satisfaction:

‘i.         That the financial statements he has been asked to approve are in fact true and fair.

ii.         That the books and records accurately record transactions that have taken place.

iii.        That the transactions that have taken place are reasonable, proper and appropriate.

iv.        That there are no breaches of law including the Corporations Act, the taxation legislation and other relevant legislation.

v.         That Mr and Mrs Lennox have not abused their positions as directors and officers.’

11                  Thereafter, having regard to the undertakings offered, it is almost certain that Mr Arkin’s application for leave to inspect the financial records of TAPL would have been granted notwithstanding TAPL’s assertions as to his past misconduct.  However, the issue of disclosure of the results of the inspection to TAPL remained unresolved.

12                  In my view, after 12 November 2002 TAPL’s opposition to liberty being granted to Mr Watson to inspect its financial records on behalf of Mr Arkin was unreasonable.  That unreasonableness had two dimensions:

-                     first, the assertion of ‘threshold issues’ referred to in my earlier judgment, the application to stay the proceedings pending the determination of those threshold issues, and the filing of evidence in support of those issues; and

-                     second, the continued opposition to the application for liberty to inspect the financial records on the grounds of Mr Arkin’s past (mis)conduct, except to the extent that such opposition related to the imposition of conditions limiting the use which might be made of information obtained during the inspection.

13                  TAPL’s own submissions on the costs question assert (p 17):

‘TAPL was reasonable in opposing access to Arkin to examine and inspect the TAPL financial records until such time as TAPL had received assurances that would preclude Arkin from using any information he obtained contrary to the interests of TAPL and in the interests of ACDT in the furtherance of its litigation above.’

Those assurances had been received by 12 November 2002, but the opposition persisted.

14                  However, it would not be appropriate simply to order that TAPL pay Mr Arkin’s costs of the proceedings after 12 November 2002 because the issue of whether Mr Arkin could disclose the results of the investigation of TAPL’s records by means of the provision of a copy of Mr Watson’s reports remained outstanding.  That issue was not even resolved by the ‘settlement’; it was merely deferred.  It is difficult to segregate costs relating to the issue of inspection from costs in relation to the issue of the use that may be made of the results of that inspection as the two issues overlap.

15                  In the circumstances, I think that the appropriate order is that there should be no order as to the costs of the proceedings subject to the following provisos:

(a)        this order does not displace any orders for costs otherwise made in the proceedings, and in particular the costs already ordered in favour of Mr and Mrs Lennox, and the costs orders made by me in relation to the motions filed by Mr Arkin and TAPL on 28 July 2003; and

(b)        TAPL should pay Mr Arkin’s costs of the proceedings in relation to the assertion by TAPL of the ‘threshold issues’ referred to in my earlier judgment, the application to stay the proceedings pending the determination of those threshold issues (including the costs of the hearing on 9 December 2002), and the filing of evidence by either party in relation to those issues (whether filed before or after 12 November 2002) as well as any costs incurred by Mr Arkin in relation to TAPL’s outline of submissions dated 4 February 2003.

16                  Mr Arkin seeks an order for payment of costs on an indemnity basis.  Illustrations of cases in which it has been found appropriate to order costs on an indemnity basis are to be found in the judgment of Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225.  In particular, Mr Arkin points to the raising of the irrelevant and expensive ‘threshold issues’ and other examples of conduct characterised as unreasonable as justification for making such an order.  I am not satisfied that it is appropriate to make such an order, particularly as the parties have chosen to dispose of the matter by agreement, rather than by means of a hearing on the merits.  It is true that the ‘threshold issues’ were found to be irrelevant, but the expense of preparing to litigate them could have been contained if Mr Arkin had sought directions at an earlier stage as to whether TAPL was entitled to raise those issues.  Neither side has displayed restraint in the conduct of these proceedings.

17                  As each side has been partially successful on the question of costs, there should be no order as to the costs of this motion.

Associate:

Dated:              2 December 2003