FEDERAL COURT OF AUSTRALIA

Demetriou v Gusdote Pty Limited [2010] FCA 581

THE COURT DECLARES THAT:

1.                  The late Robert Ashley (‘Mr Ashley’) was appointed a director of Gusdote Pty Limited with effect from 29 August 2003.

2.                  The First Applicant (‘Mr Demetriou’) was appointed a director of Gusdote Pty Limited with effect from 29 August 2003.

3.                  The Second Applicant (‘Mrs Ashley’) held one share (being 25% of the issued capital) in the capital of Gusdote Pty Limited with effect from 29 August 2003 until 31 December 2004.

4.                  The Third Applicant (‘Mrs Demetriou’) held one share (being 25% of the issued capital) in the capital of Gusdote Pty Limited with effect from 29 August 2003 until 31 December 2004.

5.                  With effect from 1 January 2005 Mrs Ashley held and continues to hold one third of the issued shares in the capital of Gusdote Pty Limited.

6.                  With effect from 1 January 2005 Mrs Demetriou held and continues to hold one third of the issued shares in the capital of Gusdote Pty Limited.

7.                  After 31 December 2004 no meetings of directors of Gusdote Pty Limited were convened.

8.                  After 31 December 2004 no resolutions were passed by the directors of Gusdote Pty Limited.

9.                  After 31 December 2004 no meetings of members of Gusdote Pty Limited were convened.

10.               North Queensland Land Development Pty Limited (administrators appointed) holds legal title to that part of the Willows Golf Course transferred on 17 May 2007 by Gusdote Pty Limited to North Queensland Land Development Pty Limited described as Lot 400 on SP 185400 upon a constructive trust for Gusdote Pty Limited.

THE COURT ORDERS THAT:

1.                  Within 28 days of the date of this order Gusdote Pty Limited correct its register of members in accordance with declarations 3, 4, 5 and 6.

2.                  Pursuant to s 1322(4)(b) of the Corporations Act 2001 (Cth)within 60 days of the date of this order the registers kept by the Australian Securities and Investments Commission under the Corporations Act 2001 (Cth)in relation to Gusdote Pty Limited be rectified to reflect declarations 1, 2, 3, 4, 5 and 6.

3.                  North Queensland Land Development Pty Limited (administrators appointed) within 28 days account to Gusdote Pty Limited (in accordance with Division 6 of Part 5.6 of the Corporations Act 2001 (Cth)) for all benefits and moneys received by North Queensland Land Development Pty Limited (administrators appointed) as a consequence of the transfer by Gusdote Pty Limited to North Queensland Land Development Pty Limited on 17 May 2007 of legal title to the land comprising the Willows Golf Course described as Lot 400 on SP 184500.

4.                  The First and Second Applicants pay to the Respondents the Respondents’ costs thrown away by reason of the amendments to the pleadings made by the Applicants pursuant to leave granted by the Court on 23 February 2010.

5.                  The First and Second Applicants pay their own costs thrown away by reason of the amendments to the pleadings made by the Applicants pursuant to leave granted by the Court on 23 February 2010.

6.                  Donald John Matheson pay to the Applicants their costs of these proceedings from and including 30 March 2010 until 25 May 2010 on an indemnity basis, otherwise and subject to orders [4] and [5] hereof that Donald John Matheson pay the costs of the Applicants on a party/party basis.

7.                  The proceedings be dismissed as against Madeas Pty Limited, Don Matheson Golf Course Construction Pty Limited and Susan Rose Matheson.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

The Claim

1                     By Amended Application filed on 25 February 2010 the applicants seek declarations and orders resulting from the failure of the fifth respondent (Donald John Matheson, hereafter referred to as ‘Mr Matheson’) to fulfil certain contractual obligations in respect of a company controlled by him, namely Gusdote Pty Limited (‘Gusdote’). As a result of such failures Mr Matheson caused property of Gusdote to be transferred to an associated company controlled by him, namely North Queensland Land Development Pty Limited (‘NQLD’). Ancillary relief is also claimed as appears in the facts. 

The Facts

2                     The relevant facts are set out below. They are contained in the affidavits of Emilios Demetriou sworn 25 January 2010, Janette Linda Ashley sworn 22 January 2010 and Stephen Brian Swaine sworn on 11 February 2010.

3                     Prior to 2003 Gusdote was the registered proprietor of land located at Townsville. Such land was primarily used for the purpose of a golf course, known as ‘Willows Golf Course’ with the remainder being a portion of land which was undeveloped (‘the 5.02 hectares’).

4                     Prior to August 2003, the sole Director of Gusdote was Mr Matheson. The sole shareholder of Gusdote was the sixth respondent, namely Susan Rose Matheson (‘Mrs Matheson’) to whom one share was allocated.

5                     A meeting took place in Townsville on 29 August 2003 at the offices of Mr Jeffrey Dickens (‘Mr Dickens’), the solicitor of Mr Matheson. It was attended by the first applicant (‘Mr Demetriou’), the second applicant (‘Mrs Ashley’), her husband the late Robert Ashley (‘Mr Ashley’), Mr Matheson, Mr Dickens and Mr Stephen Swaine, accountant to Mr Demetriou. At such meeting an agreement was concluded by Messrs Ashley and Demetriou with Mr Matheson (‘the initial agreement’). The initial agreement was intended to provide Gusdote with sufficient capital to subdivide and develop the 5.02 hectares of land.

6                     Pursuant to the initial agreement, Mr Demetriou and Mr Ashley were to pay an amount of $250,000 each to Gusdote by way of loan. In addition, they were to guarantee an outstanding debt of Gusdote to the National Australia Bank (‘the NAB’) of approximately $960,000.

7                     In consideration of such payments and guarantee, Mr Matheson was to arrange for the appointment of Mr Ashley and Mr Demetriou as directors of Gusdote. Further, Mr Matheson was to arrange for the share capital of Gusdote to be increased by the issue of one share each to Mrs Demetriou, Mrs Ashley and Mrs Matheson. By virtue of this share allocation Mrs Ashley and Mrs Demetriou would each hold 25% of the issued capital of Gusdote with Mrs Matheson holding the remaining 50%.

8                     It was also a term of the initial agreement that Mr Matheson would attend to the lodgement of all documentation with the Australian Securities and Investments Commission (‘ASIC’) necessary to record the change in directors, the increase in the share capital of Gusdote and the allocation of shares to Mrs Ashley, Mrs Demetriou and Mrs Matheson. The initial agreement was not recorded in writing.

9                     Pursuant to this agreement, on 29 August 2003 Messrs Ashley and Demetriou each signed consents to act as directors of Gusdote. Further Messrs Ashley and Demetriou each paid the amount of $250,000 to Gusdote and on 1 September 2003 Messrs Ashley and Demetriou signed the guarantee to the NAB in respect of Gusdote’s debt. Accordingly, Messrs Ashley and Demetriou fulfilled their part of the initial agreement.

10                  Despite the signing by Messrs Ashley and Demtriou of their consents to act as directors, no documents were ever lodged by Mr Matheson with ASIC recording their appointment as directors of Gusdote. As a consequence, neither Mr Demetriou nor the late Mr Ashley have ever been recorded as directors of the company.

11                  On 29 August 2003 Mr Matheson caused Gusdote under its common seal to issue share certificates to Mrs Ashley and Mrs Demetriou, signed by Mr Matheson. However, ASIC was never notified by Mr Matheson of the increased shareholding.

12                  In or about April 2004 another agreement was made in Townsville between Messrs Ashley, Demetriou and Matheson (‘the Madeas agreement’). Pursuant to the Madeas agreement, a new company was to be formed known as Madeas Pty Limited (‘Madeas’), the purpose of which was to develop the 5.02 hectares of undeveloped land owned by Gusdote. Under the terms of this agreement, the shareholding of Madeas was to be allocated as to 50% to third parties who were acting as trustees for the Matheson interests and the remaining shares were to be held as to 25% by Mrs Ashley and 25% by Mrs Demetriou. Further, Messrs Matheson, Demetriou and Ashley were to be appointed as directors of Madeas. Simultaneously a trust known as the Willows Unit Trust was to be established which created an interest of one third each for Mrs Ashley, Mrs Demetriou and the trustees of the Matheson interests.

13                  Madeas was duly incorporated, Messrs Ashley, Demetriou and Matheson were appointed directors and all shares were issued as proposed by the Madeas agreement.

14                  After the meeting which gave rise to the Madeas agreement, no meetings either of Gusdote or of Madeas were attended by Mr Ashley or Mr Demetriou. The 5.02 hectares of the undeveloped land owned by Gusdote was transferred by Gusdote to Madeas. The land was subdivided and all lots were sold. As a result a recorded profit of $387,000 nett became payable to each of the shareholders in Madeas in 2006. In fact, no payment representing such shareholder profit has ever been received by either Mrs Ashley or by Mrs Demetriou.

15                  A further agreement (‘the further agreement’) was entered into by Messrs Ashley and Demetriou with Mr Matheson by telephone in or around May 2004. The actual sequence of the Madeas agreement and the further agreement was not established at the hearing. Nevertheless, it is common ground that pursuant to this agreement both Mr Ashley and Mr Demetriou agreed to invest an additional $75,000 each in Gusdote. In consideration for such payment Mrs Demetriou’s and Mrs Ashley’s shareholding in Gusdote was to be increased from 25% to a one third share each.

16                  Mr Demetriou and Mr Ashley duly paid $75,000 as provided by the further agreement. Mr Matheson however again neglected to notify ASIC of such variation in the shareholding of Gusdote.

17                  Mr Ashley died on 23 December 2005 and Mrs Ashley duly became the legal personal representative of the late Mr Ashley’s estate.

18                  On 17 May 2007 Gusdote executed a transfer of its remaining land (‘the golf course land’) to NQLD. Neither Mr Demetriou nor Mr Ashley (or his representative) had been consulted in respect of such transfer. The transfer was signed by Mr Matheson on behalf of Gusdote. The mortgage to the NAB over the land had by that time been discharged on a date not disclosed by the evidence and accordingly Gusdote was able to provide an unencumbered title to NQLD as the purchaser.

19                  The sale of the golf course land was expressed to be for a consideration of $3,000,000, of which $200,000 was stated to have been paid in cash while the balance of the purchase price ($2,800,000) was identified in the memorandum of transfer as ‘Assumption of Liabilities’. The ‘Assumption of Liabilities’ consisted of a mortgage given by NQLD to Gusdote over the golf course land. Such mortgage provided for repayment of the principal sum to Gusdote on 17 May 2009. During the term of the mortgage an interest rate of 8% per annum was to be paid calendar monthly on the first day of each preceding calendar month during the continuance of the mortgage.

20                  The sole director of NQLD was Mr Matheson. Mr and Mrs Matheson held (and continue to hold) a 50% interest each in NQLD.

21                  Neither Mr Ashley during his lifetime nor Mrs Ashley, nor Mr and Mrs Demetriou had any knowledge of the transfer of the golf course land by Gusdote to NQLD. There has been no account to the applicants of any monies received from the operation of the golf course which was managed initially by Mr Matheson then apparently sub-let under some form of licence agreement. Nor has there been any accounting relating to the repayment of the principal secured nor of the interest payable to Gusdote in respect of the $2,800,000 secured by the mortgage granted by NQLD over the golf course land. Neither has there been any account to the applicants of the $200,000 which was paid to Gusdote by NQLD at the date of the transfer of the land from Gusdote to NQLD.

22                  On 1 April 2010 NQLD was placed in administration. Ian David Jessup and Moira Kathleen Carter were appointed voluntary administrators on that date. On 7 April 2010 the applicants sent an email to the administrators enquiring as to the position that the administrators would take in these proceedings. Correspondence received from Ms Carter dated 13 April 2010 established that the administrators held no funds and would not be in a position to pay for any legal advice or representation for NQLD in these proceedings.

23                   On 11 May 2010 the applicants filed a Notice of Motion seeking leave to proceed against NQLD. By order of the Court made on 17 May 2010, leave was granted pursuant to s 440D(1) of the Corporations Act 2001 (Cth) (‘the Corporations Act’) for the applicants to proceed against NQLD.

The Hearing

24                  Present at the hearing on 24 May 2010 were counsel for the applicants and counsel for the first, second, fourth, fifth, and sixth respondents (‘the respondents’). Following the opening submissions by counsel for the applicants, the affidavits relied upon by the applicants were read and several exhibits were tendered. Such affidavits established the facts stated above. The Court then took a short adjournment at 11:47 am, during which the parties had discussions concerning the future conduct of the proceedings. As a result of those discussions counsel for the respondents announced at the resumption of the hearing that the relief sought insofar as it affected his clients would not be opposed, other than the issue of costs. To enable the parties to formulate the final relief claimed and consented to, the Court adjourned the hearing at 12:39 pm to resume at 10.15 am on the following day, namely Tuesday 25 May 2010.

25                  At 2.18 pm on 24 May 2010 a communication was received by the Court from Mr Tim Dobinson, solicitor of Preston Law located in Cairns Queensland. Mr Dobinson informed Court staff that he had received instructions from NQLD to appear at the hearing.

26                  When the proceedings resumed at 10.15 am on 25 May 2010, NQLD appeared by Mr Dobinson via telephone. Following the announcement of his appearance, Mr Dobinson was informed by the Court of the stage to which the proceedings had progressed. Initially Mr Dobinson requested a 14 day adjournment to enable his client to make written submissions. Mr Dobinson was unaware that his client, by its administrators, had already provided notification to the applicants that NQLD had no funds and would not be appearing before the Court.

27                   The proposed adjournment was opposed by the applicants who referred the Court to the principles stated by the High Court of Australia in AON Risk Services Australia Limited v Australian National University (2009) 239 CLR 175. The Court declined the application for a 14 day adjournment. However the proceedings were adjourned at 10:35 am on 25 May 2010 to enable Mr Dobinson to obtain instructions, confer with opposing counsel and formulate any submissions which his client sought to make at the hearing.

28                  Upon resumption at 12:04 pm on the same day, the Court was informed by Mr Dobinson that having had discussions with the legal advisors for the remaining parties, his client did not oppose the grant of the relief claimed which affected his client (namely Declaration 10 and Order 3 as set out in the Court’s orders). Mr Dobinson informed the Court however that as his client had no knowledge of the facts and circumstances of the matter it was not in a position to consent to the grant of such relief.

29                  The Court notes that no suggestion was made by Mr Dobinson that any creditor of NQLD might be prejudiced by the granting of the relief sought by the applicants against NQLD.

Relief claimed against Gusdote

30                  The Amended Application relies upon ss 175 and 1322(4)(b) of the Corporations Act and of the ancillary jurisdiction of this Court as the basis upon which relief can be granted. For convenience, the relevant provisions of s 175 are set out hereunder:

Correction of registers

(1)     A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.

(2)     If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered.

(3)     If:

         (a)     the Court orders a company or scheme to correct its register of members; and

         (b)     the company or scheme has lodged a list of its members with ASIC;

the company or scheme must lodge notice of the correction with ASIC.

31                  Section 1322(4)(b) relevantly provides:

Irregularities

…

(4)     Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

…    

         (b)     an order directing the rectification of any register kept by ASIC under this Act;

…

         and may make such consequential or ancillary orders as the Court thinks fit.

32                  The Court is satisfied that declarations as sought pursuant to s 175 of the Corporations Act are warranted with regard to the recording of the directorships of Mr Demetriou and the late Mr Ashley in Gusdote and of the shareholding of Mrs Ashley and of Mrs Demetriou in that company.

33                  The Court is also satisfied that declarations should be made that no directors meetings of Gusdote were convened after 31 December 2004 and that no resolutions were passed by Gusdote after such date. The Court is also satisfied that the records of ASIC should be rectified to effect the true position concerning the directorships and shareholding of Gusdote.

Relief claimed against NQLD

34                  The declaration and orders sought against NQLD are as follows:

North Queensland Land Development Pty Limited (administrators appointed) holds legal title to that part of the Willows Golf Course transferred on 17 May 2007 by Gusdote Pty Limited to North Queensland Land Development Pty Limited (administrators appointed) described as Lot 400 on SP 185400 upon a constructive trust for Gusdote Pty Limited.

North Queensland Land Development Pty Limited (administrators appointed) account to Gusdote Pty Limited (in accordance with subdivision 6 of Part 5.6 of the Corporations Act 2001) for all benefits and moneys received by North Queensland Land Development Pty Limited (administrators appointed) as a consequence of the transfer by Gusdote Pty Limited to North Queensland Land Development Pty Limited (administrators appointed) on 17 May 2007 of legal title to the land comprising the Willows Golf Course described as Lot 400 on SP 184500.

35                  The evidence establishes that at no time did the late Mr Ashley nor Mr Demetriou have any knowledge of the transfer by Gusdote of the golf course land to NQLD, despite the fact that they were entitled to be recorded as directors of Gusdote from 29 August 2003.

36                  The applicants submit that the conduct of Mr Matheson in executing the transfer of the golf course land in favour of NQLD (a company of which Mr Matheson was the sole director) in the absence of the knowledge of Mr Demetriou and of the legal personal representative of Mr Ashley, constituted a breach of his fiduciary duty owed to Gusdote and its remaining shareholders.

37                  The principles concerning fiduciary relationships were described by Mason J (as his Honour then was) in Hospital Products Limited v United States Surgical Corporation and Others (1984) 156 CLR 41 at 96-97. At 97 his Honour said:

The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.

38                  Later, also at 97, his Honour continued:

It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed. See generally: Weinrib, "The Fiduciary Obligation" (1975) 25 University of Toronto Law Journal 1, at pp.4-8.

39                  The position of Mr Matheson, as a director of Gusdote, rendered him a fiduciary of Gusdote. When Mr Matheson executed the transfer of the golf course land to NQLD, his actions were clearly in breach of his duty as a fiduciary because of his acting in his own interest instead of acting in the interests of Gusdote. As Deane J said in Kak Loui Chan v Zacharia (1984) 154 CLR 178 at 198:

The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement “in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect” (per Lord Cranworth L.C., Aberdeen Railway Co. v Blaikie Brothers (1854) 1 Macq. 461 at 471). [Citation included]

40                  In Muschinski v Dodds (1985) 160 CLR 583, Deane J at 612-615 considered the operation of the constructive trust. At 614 his Honour said:

Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.

41                  At 616 his Honour continued:

The principal operation of the constructive trust in the law of this country has been in the area of breach of fiduciary duty. Some text writers have expressed the view that the constructive trust is confined to cases where some pre-existing fiduciary relationship can be identified (see, e.g., Lewin on Trusts, 16th ed. (1964: Mowbray), p.141). Neither principle nor authority requires however that it be confined to that or any other category or categories of case (cf., generally, Professor R.P. Austin's essay on "Constructive Trusts" in Essays in Equity (ed. Dr. Paul Finn) (1985), esp. at pp.196-201; Waters, op. cit., pp.28ff.). Once its predominantly remedial character is accepted, there is no reason to deny the availability of the constructive trust in any case where some principle of the law of equity calls for the imposition upon the legal owner of property, regardless of actual or presumed agreement or intention, of the obligation to hold or apply the property for the benefit of another (cf. Hanbury and Maudsley, op. cit., p.301; Pettit, op. cit., p.55).

42                  For a recent discussion by the High Court of Australia of the principles of the constructive trust see John Alexander’s Clubs Pty Limited and Anor v White City Tennis Club Limited; Walker Corporation Pty Limited v White City Tennis Club Limited and Ors [2010] HCA 19.

43                  In Farrow Finance Co Ltd (in Liq) v Farrow Properties Pty Ltd (in Liq) and Others (1997) 26 ACSR 544, Hansen J in the Supreme Court of Victoria, Commercial list, considered facts which have an analogous relationship to those in the present circumstances. In those proceedings the Court, by way of relief, declared that the entity receiving funds to which it was not entitled held such funds as a constructive trustee for the aggrieved party. In the present circumstances there is no reason why, the breach of fiduciary duty having been established, the Court should not grant similar relief.

44                  The applicants seek a declaration that NQLD account for the benefits and monies received by NQLD arising out of the transfer made on 17 May 2007. Since such relief follows in consequence of the Court’s findings, the Court will make the declaration and order sought against NQLD.

Costs

45                  These proceedings commenced by Application filed on 27 August 2009. However, on 23 February 2010 the Court granted leave to the applicants to file an amended application and statement of claim.

46                  The applicants consent to an order that they pay the respondents their costs thrown away by reason of the amendments to the pleadings made by the applicants.

Applicants’ submissions on Costs

47                  Subject to the above concession, the applicants seek an order that Mr Matheson pay the applicants their costs of these proceedings from and including 8 December 2009 until 25 May 2010 on an indemnity basis. On 8 December 2009 the Amended Application and Statement of Claim were provided to the respondents and on 30 March 2010 the respondents filed defences raising issues which were all abandoned on the first day of the hearing.

48                  The applicants submit that such defences were maintained by the respondents until the hearing had commenced, as is evidenced by the ‘Response of the 1^st, 2^nd, 4^th, 5^th and 6^th Respondents to the Applicant’s statement of Issues’ (‘the Response’) filed 19 May 2010. The Response added an additional seven issues for determination to the list already identified by the applicants. The applicants submit that the respondents clearly conducted themselves as if the trial were to be contested on numerous issues, yet by their conduct on the first day of the hearing they must be taken to have acknowledged that there was never any valid defence available to them.

49                  The applicants seek an order for an award of indemnity costs against Mr Matheson. As to the remaining respondents, the applicants submit that Mrs Matheson had no relevant role in the proceedings other than being affected by the orders of the Court. The applicants further submit that Gusdote and Madeas are corporations in respect of which Mrs Ashley and Mrs Demetriou have an interest. Accordingly if those companies were ordered to pay costs, Mrs Ashley and Mrs Demetriou would be prejudiced since, as majority shareholders, any such costs order would operate to their detriment in proceedings in which they were successful.

50                  The applicants submit that the conduct giving rise to this claim was solely that of Mr Matheson. The applicants also submit that it was Mr Matheson who made the relevant agreements and who failed to fulfil the agreements by having Gusdote’s corporate records amended. Further it was Mr Matheson who arranged for the transfer of Gusdote’s land to NQLD making it necessary for NQLD to be joined as a party.

51                  The applicants submit that insofar as Don Matheson Golf Course Construction Pty Limited is involved, it played no role and apparently has incurred no expense. Had a request been made to discontinue the proceedings against that company, the applicants submit that they would have consented to such order.

Respondents’ Submissions

52                  The respondents challenge the order for indemnity costs. They seek orders that the proceedings against the second, fourth and sixth respondents be dismissed since no relief was granted against them. As to the second respondent (Madeas) it is submitted that whilst declarations were sought in the Amended Application in relation to meetings of its directors, such declarations, even if they could have been made on the evidence, would have had no utility. The respondents submit that merely because two of the applicants are shareholders in Madeas does not disentitle Madeas to an order for costs in its favour in circumstances where no relief was ordered against it.

53                  The respondents further submit that the claim of the applicants was initially under the Trade Practice Act 1974 (Cth) (‘the TPA’) but that such claim was abandoned when the proceedings were reconstituted through the amended pleadings. The Amended Application substantially altered the basis for the relief sought by the applicants. All claims relating to the TPA were abandoned and instead claims were made under the Corporations Act. The respondents submit that Mr Matheson should not be required to bear the costs of the proceeding prior to such amendment.

54                  The respondents further submit that Mr Matheson appeared in the proceedings in his personal capacity to defend a breach of contract claim and that Mr Matheson was not the contracting party to the contracts. Rather the contractual party was Gusdote of which Mr Matheson was only a director. It was in that capacity that any agreement relied upon by the applicants was made. The respondents further submit that Mr Matheson had an arguable defence and that an award of indemnity costs is not warranted.

55                  Lastly, the respondents submit that in respect of any order for costs in favour of the second, fourth and sixth respondents, the applicant should be made jointly and severally liable for those costs.

Findings as to Costs

56                  There is no question that the applicants should be ordered to pay the costs thrown away by the amendment to the pleadings pursuant to the leave granted on 23 February 2010.

57                  As to the claim by the applicants for indemnity costs from 8 December 2009, the Court observes that no steps were taken to defend the amended claim until the Defence was filed on 30 March 2010. The affidavits in support of such defence were filed on 1 April 2010. Whilst the Amended Application and Statement of Claim may have been exchanged on 8 December 2009, it is realistic to allow reasonable time for the respondents to consider the amended claim.

58                  To justify an order for indemnity costs, certain prerequisites must exist. In AWA Ltd v Daniels trading as Deloitte Haskins and Sells (Unreported, 50271 of 1991 NSWSC Comm D, Delivered 8 October 1992), Rogers CJ Comm D (NSWSC) said :

Circumstances in which indemnity costs, or solicitor and client costs, have been ordered may broadly, be summarized as follows:

1.    Misconduct, or inappropriate conduct, by a party in the course of the litigation. This could include deliberately delaying the proceedings by putting a knowingly false defence, or bringing proceedings for an ulterior motive (cf Degman v Wright (No 2) [1983] 2 NSWLR 354; Packer v Meagher [1984] 3 NSWLR 486);

2.    Litigation which had such a remote prospect of success that the action should not have been brought or continued. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397, Woodward J said at 401:

 “I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.”

59                  For statements to similar effect, see Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 at 232-233 (Sheppard J) and Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [41] (Goldberg J).

60                  In Ragata Developments Pty Limited v Westpac Banking Corporation and Stanley Thompson Valuers Pty Limited [1993] FCA 72, Davies J said at [8]

The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. See Simpson v. Malherbe (1865) 4 Giff. 707; Packer v. Meagher (1984) 3 NSWLR 486, Daniell's Chancery Practice, 8th Ed. 1086-7; Fountain Selected Meats (Sales) Pty Limited v. International Produce Merchants Pty Limited at 401. In the last mentioned case, Woodward J. at 401 also mentioned the circumstance where an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, as where, for example, there was wilful disregard of the known facts or the clearly established law. See also Australian Guarantee Corporation Limited v. De Jager [2001] VSCA 247; (1984) 4 VR 483 and Blackburn v. State of New South Wales (Hunt J., 9 August 1991, unreported) which is referred to in Hurstville Municipal Council v. Connor (1991) 24 NSWLR 724 at 733.

61                  Costs are not awarded to punish a party but rather to compensate another party: see Oshlack v Richmond River Council (1998) 193 CLR 72 per Brennan CJ at [1]; Latoudis v Casey (1990) 170 CLR 534 at 567 (per McHugh J).

62                  Whilst the claim has been made by the respondents that Mr Matheson was acting as agent for Gusdote, the Court is satisfied that the corporate mind of Gusdote was solely that of Mr Matheson. It was Mr Matheson who entered the agreement and who bore the responsibility for ensuring that the register of directors and shareholders was accurate. Further, the agreement made between the late Mr Ashley and Mr Demetriou was with Mr Matheson, although it did impact upon the structure and operation of Gusdote. For these reasons the Court is satisfied that Mr Matheson alone is the party against whom the question of costs is to be considered.

63                  The next issue is whether it can be said that the conduct of Mr Matheson falls in that category of conduct which merits an order for indemnity costs, namely whether the conduct of Mr Matheson personally has resulted in costs being incurred without any sound reason. Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) the Court has been invested with the jurisdiction to make any order for costs which, in its discretion, it considers appropriate. Such jurisdiction however is to be exercised judicially: see Oshlack per McHugh J at [65].

64                  Whilst the Court is required to consider the conduct of the litigation rather than the events which gave rise to the litigation when assessing costs considerations, it is necessary to have regard to the manner in which the proceedings have been conducted and whether certain issues within the underlying facts justify the conduct of either party. In doing so the Court is unable to see any justification for the defences raised by the respondents who appeared. The Court is satisfied that the raising of defences without merit and maintaining such defences until the first day of the hearing before abandoning them justifies the making of an indemnity costs order. However, as has already been referred to, the defences were not raised until 30 March 2010. The Court is satisfied that the indemnity costs order should operate from that date until 25 May 2010 and that otherwise Mr Matheson should bear party/party costs of the applicants from the inception of the proceedings until 30 March 2010 other than the costs thrown away by virtue of the amendments to the pleadings by the applicants.

65                  As regards the costs of the second respondent (Madeas), no relief will be ordered against that company. There is no suggestion that any separate costs were incurred by that company, the shareholding of which is shared by both the interests of the applicants and of Mr and Mrs Matheson. Madeas took no active part in the proceedings. There is no evidence of any meeting of any directors authorising any active defence. In these circumstances the Court makes no order in relation to the costs of Madeas.

66                  As to the fourth respondent, Don Matheson Golf Course Construction Pty Limited, there is no evidence that the company has taken any active role in the proceedings. The Court makes no order in respect of the costs in that company.

67                  With regard to the sixth respondent, Mrs Matheson, she has taken no active part in the proceedings. Since declarations were sought involving her shareholding in Gusdote she had been properly joined as a party. The Court makes no orders in respect of the costs of the sixth respondent.

Associate:

Dated:         11 June 2010