FEDERAL COURT OF AUSTRALIA

Toal v Aquarius Platinum Limited (No 2)  [2004] FCA 678

COSTS – discretion to award costs – indemnity costs – circumstances under which indemnity costs may be awarded – shareholder entitled to shares under scheme of arrangement – shares not issued – cash payment tendered in lieu – disregard by respondents of applicants’ rights – public interest dimension – indemnity costs awarded – amended pleadings – costs thrown away by reason of amendments awarded.

Federal Court of Australia Act 1976 (Cth)

Federal Court of Australia Rules

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

re Wilcox; Ex parte Venture Industries Pty Ltd  (1996) 72 FCR 151 cited

MICHAEL TOAL and GARY TOAL v AQUARIUS PLATINUM LIMITED (formerly ‘Strategic Platinum Mines Limited’) ARBN 087 577 893 and AQUARIUS PLATINUM (AUSTRALIA) LIMITED (formerly ‘Aquarius Exploration NL’ and ‘Aquarius Platinum NL’)

N3057 of 2002

FRENCH J

25 JUNE 2004

PERTH

THE COURT ORDERS THAT:

1.         Paragraph 3 of the orders made on 4 May 2004 is varied to read as follows:

            ‘3(1)     The respondents are to pay the applicants’ costs of the application on an indemnity basis.

            3(2)      The applicants are to pay the respondents’ costs thrown away by reason of the last amendments to the application and statement of claim and are to pay the respondents’ costs of the preparation of their submission in that regard not including the costs of the affidavit in support thereof.

            3(3)      The respondents are to pay the applicants’ costs of the submission for indemnity costs.’

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

REASONS FOR JUDGMENT ON COSTS

Introduction

1                     In 1999 the Supreme Court of Western Australia approved a scheme of arrangement under which all the shares in Aquarius Platinum (Australia) Limited (‘Aquarius Australia’) were acquired by a company incorporated in Bermuda, Aquarius Platinum Ltd, (‘Aquarius Bermuda’).  Shares in the acquiring company were to be issued to shareholders in Aquarius Platinum Australia.  Some foreign shareholders were not included because of the laws of their countries of domicile.  Under the scheme they were to receive the proceeds of sale of an equivalent number of shares in the acquiring company.  Michael and Gary Toal, shareholders who lived in Northern Ireland, were erroneously classed by Aquarius Australia as Foreign Shareholders not entitled to receive shares in Aquarius Bermuda.  They were issued with a cheque for $28,037.88 in lieu of the 18,000 shares in the acquiring company which they expected to receive.  The cheque represented the proceeds of sale of 18,000 shares in Aquarius Bermuda less brokerage, stamp duty and other tax and charges.  They complained to the controllers of Aquarius Bermuda and Aquarius Australia.  Their concerns were not acted upon. 

2                     Subsequently the Toals instituted proceedings in this Court seeking, inter alia, an order for the issue of the shares to which they were entitled.  For reasons which I published on 4 May 2004, I made the following orders:

‘1.        The first respondent do specifically perform its obligations under the Implementation Agreement made with the second respondent and dated 17 June 1999 and the Deed Poll dated 17 June 1999 and issue to the applicants 18,000 fully paid shares in itself.

2.         The first respondent pay to the applicants the sum of $3,780 by way of damages.

3.         The respondents pay the applicants’ costs of the application unless within 21 days either of the parties apply to the Court for a different order.

4.         The parties have leave within 21 days for such further orders as may be necessary to give effect to the orders in par 1 hereof.’

See: Toal v Aquarius Platinum Limited [2004] FCA 550.

3                     By submissions lodged on 1 June 2004 the Toals seek orders for indemnity costs as follows:

‘1.        That the Respondents pay the Applicants’ costs on an indemnity basis pursuant to Section 43(1) of the Federal Court Act.

2.         In the alternative, that the Respondents pay the Applicants’ costs on an indemnity basis from 20 October 2003 pursuant to Order 23 rule 11(4) of the Federal Court Rules.

3.         In the alternative that the Respondents pay the Applicants’ costs on an indemnity basis in respect to costs incurred in responding to the Defence dated 6 February 2003 in so far as it was amended 20 October 2003.

4.         In addition to paragraph 3 and/or in the alternative that the Respondents pay the Applicants’ costs on an indemnity basis in respect to costs incurred in responding to paragraph 1 of the Defence dated 6 February 2003 and incurred as a result of the failure by the Applicants to admit facts in accordance with Notice to Admit Facts dated 12 November 2002 and 4 March 2003.

5.         That the Respondents pay the Applicants’ costs of this Application on an indemnity basis.

6.         Such further orders as this Honourable Court deems appropriate.’

4                     The respondents for their part seek the following orders:

‘(a)      Save as set out in (b) below, the Respondents pay the Applicants’ costs of the application, to be taxed if not agreed.

(b)       The Applicants pay the Respondents’ costs, to be taxed if not agreed, of and incidental to and occasioned by:

            (i)         the discontinuance, abandonment and withdrawal of parts of the Applicants’ claims before trial; and

            (ii)        the Respondents’ defence of the Applicants’ claim for legal costs as damages.

(c)        The Applicants pay the Respondents’ costs, to be taxed if not agreed, of these submissions and affidavits to vary the costs order.’

Statutory Framework

5                     Section 43 of the Federal Court of Australia Act relevantly provides:

‘(1)  Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.

...

(2)  Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.’

6                     Order 22 relates to withdrawal and discontinuance of proceedings or part thereof.  In particular, O 22 r 2 provides:

‘2(1)  Subject to sub-rules (2) and (3) a party making a claim for relief may discontinue a proceeding so far as concerns the whole or any part of any claim for relief, by notice in accordance with Form 29:

(a)       at any time before the directions hearing appointed in the application - without the leave of the Court or the consent of any other party;

(b)       where after the directions hearing the proceeding continues on pleadings but the pleadings are not closed - without the leave of the Court or the consent of any other party;

(c)        where judgment has not been entered - with the consent of all the parties; and

(d)       at any time - with the leave of the Court.’

7                     Order 22 r 3 provides:

‘3(1)  A party who discontinues pursuant to paragraph 2(1)(a) or (b) shall be liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding.

  (2)  A party who discontinues under paragraph 2(1)(c) is liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding, unless the terms of the consent provide otherwise.’

8                     Order 62 r 26 provides:

‘26(1)  Where pursuant to Order 22, rule 2 a party to any proceeding discontinues the proceeding without leave as to the whole or any part of the relief claimed by him against any other party, the discontinuing party shall, unless the Court otherwise orders, pay the costs of the party against whom the discontinued claim is made occasioned by the discontinued claim and incurred before service of notice of the discontinuance.’

9                     Order 23 of the Federal Court Rules provides for offer of compromise and payment into Court.  Order 23 r 11(4) provides:

‘If :

(a)       an offer is made by an applicant and not accepted by the respondent: and

(b)       the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer;

then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:

(c)        up to and including the day the offer was made - taxed on a party and party basis: and

(d)       after that day - taxed on an indemnity basis.’

10                  The emphasis of O 62 upon party and party costs is reflected in O 62 r 12(1) and O 62 r 19.  Order 62 r 12(1) provides:

‘Except as otherwise ordered in all proceedings commenced on and after the date these Rules came into operation, solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for.’

Order 62 r 19 provides:

‘On every taxation the taxing officer shall allow all such costs charges and expenses as appear to him to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party, but, except as against the party who incurred them, costs shall not be allowed which appear to the taxing officer to have been incurred or increased:

(a)       through over-caution, negligence or misconduct;

(b)       by payment of special fees to counsel or special charges or expenses to witnesses or other persons; or

(c)        by other unusual expenses.’

The Abandonment of Certain Claims for Relief

11                  It is convenient first to consider the respondents’ contention that they are entitled to the payment of costs incidental to and occasioned by ‘the discontinuance abandonment and withdrawal of parts of the applicants’ claim before trial’ and the respondents’ defence of the applicants’ abandoned claim for legal costs as damages.

12                  The applicants commenced their proceedings by application filed in the New South Wales District Registry on 1 October 2002.  Initially they named only Aquarius Bermuda as a respondent.  Following the transfer of the proceedings to the Western Australian District Registry they filed a statement of claim and applied to join Aquarius Australia as second respondent.  They asserted in the statement of claim an entitlement to recover legal costs as damages.  The quantum of this aspect of the claim was $77,358. 

13                  Defences were filed in February 2003.  Following various requirements for particulars, the quantum of the legal costs aspect of the claim was successively reduced to $45,677.97 in May 2003 and to $A6,039.40 and GBP1,175 in September 2003.  By amendments effected by consent orders made in October 2003 the claim for legal costs as damages was abandoned.  So too was a claim in negligence against Aquarius Australia.  The consent orders provided for the filing of amended defences to the amended statement of claim and the filing of replies.  They established a trial date of 10 November.  No order was sought or made as to the costs of or occasioned by the amendments.

14                  The discontinuance of a proceeding, so far as concerns the whole or any part of any claim for relief is effected by the filing of a notice in Form 29.  In this case there was an amendment of the application and statement of claim involving the abandonment of a particular head of damages and of a cause of action in negligence.  No order for costs was sought at the time of the amendment. 

15                  In my opinion, and without reference to the order relating to costs on discontinuance, it is appropriate to make the usual order that the applicants pay the respondents’ costs thrown away by reason of the amendments made to the application and statement of claim in October 2003.  The applicants should also pay the respondents’ costs of preparing the submission in support of the order for costs flowing from the amendments.  The costs of the submissions will not include the cost of the preparation of the supporting affidavit sworn on 25 May 2004.  It was unnecessary as the relevant point was able to be made entirely by reference to the Court record.  The affidavit with its exhibits comprised 171 pages.  These set out in tedious detail exchanges of correspondence and drafts between the solicitors for the parties.  None of it was needed. 

Whether the Applicants are Entitled to Indemnity Costs

16                  The provisions of O 62 operate subject to the general discretion of the Court under s 43 of the Federal Court of Australia Act.  It is true that O 62 contemplates the recovery of costs on a party and party basis – Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 226 (Sheppard J).  However, as Black CJ said in re Wilcox; Ex parte Venture Industries Pty Ltd  (1996) 72 FCR 151 (Cooper and Merkel JJ concurring) the Court has ‘... an absolute and unfettered discretion in awarding costs, although that discretion must be exercised judicially’ (at 152).  It follows, as his Honour said, that ‘indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court exercising its discretion in that way’ (at 152).

17                  Sheppard J in the Colgate case gave extensive consideration to the bases upon which indemnity costs might be awarded.  He elicited from the decided cases a number of examples of circumstances in which indemnity costs could be awarded:

1.         Where a party has pleaded fraud knowing it to be false.

2.         Particular misconduct causing loss of time to the Court and other parties.

3.         The commencement of proceedings for an ulterior motive or in wilful disregard of known facts or clearly established law.

4.         Making allegations which ought never to have been made or undue prolongation of a case by groundless contentions.

5.         Imprudent rejection of an offer to compromise.

But as Sheppard J said (at 234):

‘The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.’

18                  In the present case, as I have found, the applicants did not receive the shares to which they were entitled under a scheme of arrangement sanctioned by the Supreme Court of Western Australia.  Their concerns about the failure to honour that entitlement were treated dismissively.  I have recited in the primary judgment the history of their attempts to have the matter resolved without resort to litigation.  Aquarius Bermuda maintained in its defence right up to the month before the hearing that it was never under any obligation to issue 18,000 shares to the applicants. 

19                  It is true that the respondents made an offer of settlement in December 2002 for payment of a cash sum of $50,000 and re-issue of the cheque for $28,037.88, but there was no offer to do what the applicants sought from the outset, namely to issue the shares to which they were entitled.  On 20 October 2003, the applicants offered, under O 23, to compromise the claim for $145,470.08.  This was not accepted.  It may be that the value of the shares at judgment exceeded that amount.  I do not, however, need to decide that question.

20                  In my opinion there are special features of this case which justify the making of an indemnity costs order.  They are:

1.         The source of the applicants’ entitlement which was a scheme of arrangement approved by the Supreme Court upon the basis, inter alia, that shares in Aquarius Bermuda would be issued to the applicants.

2.         The extended and dismissive refusal by the respondents to recognise the applicants’ entitlement.

3.         The form that the relief ultimately took was precisely what the applicants had sought at the outset.

21                  This was not a large claim.  The applicants were relatively small shareholders who wanted the respondents to recognise their rights and to give effect to them.  The fact that the rights arose under a scheme of arrangement gave a public interest dimension to the case.  There is a public interest in the strict and diligent observance of shareholder’s rights under court sanctioned schemes of arrangement.  In my opinion, the applicants should be out of pocket as little as possible because of the successful pursuit of their rights.  For this reason I will vary the costs order made on 4 May 2004 to award them indemnity costs less costs thrown away by reason of the late amendments to the application and statement of claim.

Associate:

Dated:              25 June 2004