FEDERAL COURT OF AUSTRALIA

Whitford Grove Pty Ltd v Hughes [2014] FCA 195

THE COURT ORDERS THAT:

1.    The first defendants do pay half of the plaintiff's costs on the making of the originating process, the filing of the affidavit of Mr Glossop of 27 January 2013 in support thereof, the making of the interlocutory application of 15 March 2013 and the affidavit of Mr Glossop in support thereof, and the affidavit of Mr Glossop dated 30 August 2013, as taxed, if not agreed.

2.    The first defendants do pay the plaintiff's costs of the application of this order heard 28 January 2014, to be taxed, if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The plaintiff commenced this proceeding against the first defendants (the Hughes) and the second defendant (the company) pursuant to s 234 of the Corporations Act 2001 (Cth) because it considered the affairs of the company were being conducted contrary to the interests of the members as a whole and in a manner oppressive to its interests as a member of the company.

2    In the event, following mediation ordered by the Court, the plaintiff, which at material times was controlled by Mr Laurence Glossop, and the Hughes, settled their differences on the basis that the Hughes would purchase the shareholding of the plaintiff at a price determined by the application of an agreed valuation process formula involving an expert valuer.

3    To effect the substantive agreed outcome of the proceeding the parties have now agreed appropriate orders, save in respect of costs.

4    The plaintiff now contends that the Hughes should pay the costs of the proceeding.

5    The particular costs order the plaintiff seeks is as follows:

1.    The first defendants pay the plaintiff’s cost of and incidental to:

(1)    The originating process filed on 31 January 2013 including the affidavits of Laurence Graham Glossop made 27 January and 30 August 2013; and

(2)    The interlocutory application dated 15 March 2013 including the affidavit of Laurence Graham Glossop made 15 March 2013.

2.    The first defendants pay the plaintiff’s costs of today, being the hearing of the application for such costs.

6    Recognising that the ordinary rule that a successful party in proceedings is entitled to its costs does not apply in the circumstances of this proceeding, where the parties have settled their differences by the making of consent orders without a contested hearing, the plaintiff contends that this is nonetheless an appropriate case for the making of a costs order because it can show it has had a substantial victory and that the conduct of the first defendants at material times was unreasonable: see Re Minister for Immigration and Ethic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624; Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5] and the cases there discussed. Special leave to appeal to the High Court was refused in the latter case: Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2004] HCA Trans 391 (8 October 2004).

7    Thus, the issue is whether the plaintiff is entitled to a costs order for the costs of filing the originating process and the costs of making an interlocutory application for production of the books of the company on 15 March 2013, as well as the costs associated with the affidavit of Mr Glossop made 30 August 2013 concerning the completion of the valuation by the expert valuer pursuant to the consent orders.

Is the plaintiff entitled to a costs order?

8    As to the proceeding as a whole, the plaintiff submits it has been substantially successful as it has ultimately obtained an order for the compulsory purchase of its shares, as sought in the originating process, which was supported by Mr Glossop’s affidavit made 27 January 2013, and has established that its shares in the company are worth far more than what was offered by the Hughes in January 2012 prior to commencing the proceeding.

9    As to the costs of the interlocutory application dated 15 March 2013 and the affidavit of Mr Glossop of that date made in support of it, the plaintiff submits the Hughes acted unreasonably by not producing the information requested.

10    As to the affidavit of Mr Glossop made 30 August 2013, the plaintiff says it is entitled to costs of that affidavit as it was obliged to take further action to ensure that the expert valuer’s report complied with the terms of the consent orders made following mediation.

11    While the plaintiff acknowledges that prior to the plaintiff commencing the proceeding there had been negotiations between the parties and their solicitors, and that the Hughes’ lawyer had proposed a court ordered regime for the valuation of the company, it says what was then proposed on behalf of the Hughes was substantially different to the consent orders ultimately agreed, which specified a valuation methodology and payment of dividend. Additionally, the Hughes earlier had only proposed an option that the company buy back the plaintiff’s shares and that only 50% of the purchase price be paid at completion, neither of which was a feature of the consent orders.

12    The plaintiff contends that the Hughes did not engage in meaningful negotiations to determine the real value of the company, and so the plaintiff’s interest in it, at any time until they commenced the proceeding and engaged in the mediation.

13    The plaintiff further submits that until the Court gave an indication on 18 March 2013 concerning the provision of documents, the Hughes deprived the plaintiff of information and books, despite reasonable requests for a period of almost a year before the proceeding was commenced, as explained by Mr Glossop in his affidavit made 27 January 2013.

14    The plaintiff says that in the circumstances it had no choice but to commence the proceeding and now that it has obtained the order that it sought it is entitled to consider it has been substantially successful in the proceeding.

15    Furthermore, the plaintiff submits it was forced to seek orders for the production of materials, which were provided following the making of an application for orders, even though orders were not then made.

16    Finally, it says the affidavit of 30 August 2013 was required to be filed in order to obtain compliance with the basis upon which the expert valuer was to conduct the valuation of the shares in the company.

17    The Hughes emphasise, however, that there had been prior negotiations, that is before the proceeding was commenced, to agree to a process by which the plaintiff’s shares might be purchased.

18    They further note that the final determination of the plaintiff’s 50% equity, namely, a sum of $373,415, is an amount less than offers previously submitted by the plaintiff to them.

19    The Hughes also note that the expert valuer stated that the discounted cash flow (DCF) method of valuation that the parties agreed upon, overvalued the company.

20    The Hughes submit that they have not, at any time, prevented the plaintiff or its representatives from having access to the books and records of the company.

21    In relation to those submissions, the plaintiff says that the facts drawn from the history of dealings between the parties and the steps that were necessary for it to obtain access to the books of the company, show that the Hughes, at material times, were not forthcoming.

22    The plaintiff also disputes the statement by Mr Hughes in his affidavit dated 19 December 2013 that as to the provision of the MYOB financial information from May, June and July 2013 and the period ending 30 June 2013, the Hughes mistakenly thought that as the valuation was up to 31 March 2013 that information was not required to be provided under the consent orders of 4 April 2013.

23    The plaintiff also disputes the further statement in that affidavit by Mr Hughes that up to 30 August 2013 “the parties and the Valuer had proceeded on the basis that a DCF valuation was not an appropriate method of valuation …”.

24    In my view, there is little doubt that the plaintiff, after some 12 months of negotiating with the Hughes reasonably considered it had no alternative but to commence the proceeding. The negotiations between the parties on the face of all the materials before the Court were not close to resolution. The institution of the proceeding materially changed the landscape in which negotiations were conducted.

25    Further, while it is correct to observe that the Hughes were prepared to enter into mediated discussions to resolve the dispute following the commencement of the proceeding, the resolution achieved, as the plaintiff submits, included features significantly different from those that had previously been proposed, including as to the manner and timing of payment of an agreed price and security in respect of it.

26    It is also true to observe, as the plaintiff does, that but for its interlocutory application filed on 15 March 2013 to obtain an order for access to the documents, it was being frustrated by the Hughes in that regard.

27    Additionally, I accept the contention of the plaintiff that it was also obliged, following attempts to resolve the DCF issue, to file a further affidavit of Mr Glossop in August 2013 to resolve the basis upon which the expert valuer was to complete his report.

28    I accept the plaintiff’s submission that the view that the expert valuer had earlier expressed (and continued to express even in the final valuation report), to the effect that the DCF basis was irrelevant and overvalued the company, was and is of no consequence, given the basis upon which the consent orders were made and the basis upon which the valuation was to be conducted by agreement.

29    In these circumstances, the position is that the proceeding was not commenced and did not proceed on a basis that reflected some consensus by the parties as to how the matter in dispute between them should be resolved. Rather, the evidence shows that the Hughes were reluctant to settle and at various stages in the proceeding dragged their heels, so to speak, which frustrated the early completion of the proceeding and the settlement respectively, and caused the plaintiff to incur additional legal costs in the proceeding which it should not otherwise have been obliged to incur.

30    While it appears that the final price for the shares paid to the plaintiff may have been less than some settlement offers made, something conceded by the plaintiff, that is not, in the circumstances, a reason why there should be no order for costs in this case.

31    In all the circumstances, I consider that the plaintiff has had a victory that it was only able to achieve by instituting the proceeding, and that it was obliged both in March 2013 and August 2013 to undertake interlocutory steps and file further affidavits in order to cause matters to be resolved in an appropriate way.

32    Nonetheless I acknowledge and accept that offers of settlement were made at different points which, if accepted, may have led to an earlier resolution of the proceeding, and I also accept that the Hughes did enter into the mediation process which enabled the earlier resolution of the proceeding than might otherwise have been the case – although, as noted, they dragged their heels in relation to production of documents and only gave appropriate disclosure in March 2013, and later again seemed anxious to have the expert valuer conclude his valuation report on an erroneous basis, not agreed, that would have produced a much lower purchase price, conduct that smacks of opportunism.

33    In all these circumstances, I consider it is appropriate that the plaintiff should recover some of the costs it incurred in relation to the making of the originating process, the filing of the affidavit of 27 January 2013 in support thereof, the making of the interlocutory application of 15 March 2013 and the affidavit of that date in support thereof, and the affidavit filed on behalf of the plaintiff and made by Mr Glossop dated 30 August 2013. In my view the first defendants should pay half of those costs as taxed, if not otherwise agreed. The first defendants should also pay the costs of the application for costs heard on 28 January 2014.

order

34    There will accordingly be an order in these terms:

1.    The first defendants do pay half of the plaintiff’s costs on the making of the originating process, the filing of the affidavit of Mr Glossop of 27 January 2013 in support thereof, the making of the interlocutory application of 15 March 2013 and the affidavit of Mr Glossop in support thereof, and the affidavit of Mr Glossop dated 30 August 2013, as taxed, if not agreed.

2.    The first defendants do pay the plaintiff’s costs of the application of this order heard 28 January 2014, to be taxed, if not agreed.

Associate:

Dated:    10 March 2014