Federal Court of Australia

Hegde, in the matter of Nutricare Holdings Limited v Nutricare Holdings Limited (No 2) [2021] FCA 33

ORDERS

THE COURT ORDERS THAT:

1.    Each party is to bear its own costs of this proceeding.

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

REASONS FOR JUDGMENT

REEVES J:

1    On 12 November 2020, I delivered my reasons for judgment in this matter: Hegde, in the matter of Nutricare Holdings Limited v Nutricare Holdings Limited [2020] FCA 1646 (the primary judgment). At the same time, I directed the parties to submit to my chambers a draft set of orders to reflect the contents of those reasons. The orders that were subsequently made based on the draft so submitted included the following:

THE COURT DECLARES BY CONSENT THAT:

1.    The applicant has never resigned as a director of the first respondent.

2.    Notwithstanding the fact that the applicant resigned as an employee of the first respondent with effect from 29 May 2020, the circulating resolution signed by the second respondent on 19 May 2020, by the applicant on 25 May 2020 and by the third respondent on 12 June 2020, was effective to continue the applicant’s appointment as a director of the first respondent from at least 12 June 2020.

3.    The resolution made on or about 25 August 2020 by which the second respondent purported to appoint the following individuals as directors of the first respondent was invalid:

(a)    Mark James Casey;

(b)    Mike Tauschek;

(c)    Hammad Atassi; and

(d)    Kimberlee Ann Boribon.

4.    The resolutions passed at the 12 October 2020 Extraodinary [sic] General Meeting of the first respondent to ratify the appointments of the following individuals as directors of the first respondent on 25 August 2020 were invalid:

(a)    Mark James Casey;

(b)    Mike Tauschek;

(c)    Hammad Atassi; and

(d)    Kimberlee Ann Boribon.

5.    The resolutions passed at the 12 October 2020 Extraordinary General Meeting of the first respondent to appoint the following individuals as directors of the first respondent were valid:

(a)    Mark James Casey;

(b)    Mike Tauschek;

(c)    Hammad Atassi; and

(d)    Kimberlee Ann Boribon.

THE COURT ORDERS BY CONSENT THAT:

6.    Pursuant to s 1322(4)(b) of the Corporations Act 2001 (Cth):

(a)    The register kept by the Australian Securities and Investments Commission under the Corporations Act 2001 (Cth) be rectified within 14 days to reflect the declarations made at paragraphs 1 to 3 above (to the extent needed); and

(b)    The parties take such steps as are necessary to effect any such rectification.

…

2    Those orders also made provision for the applicant, Mr Sharath Hegde, and the first respondent, Nutricare Holdings Limited, the second respondent, Mr James Dutton, and the eighth respondent, Mark Casey Pty Ltd, to file submissions in respect of the costs of the proceeding. It was subsequently agreed between the parties that the issue of costs should be determined on the papers. These reasons relate to that issue.

3    This proceeding concerned Mr Hegde’s directorship of Nutricare Holdings and the composition of the Board of that company. The factual context to the dispute is adequately outlined in the primary judgment at [4]-[15] and does not require repetition in these reasons.

4    The three issues that fell to be determined in the proceeding are identified near the outset of the primary judgment as follows (at [2]):

(a)    whether Mr Hegde’s position as a director of Nutricare Holdings ceased in May 2020 either:

(i)    on 11 May 2020, when he sent an email to Nutricare Holdings’ registered office [described at [8] of the primary judgment];

or:

(ii)    on 29 May 2020, when his resignation as an employee of Nutricare Resources Pty Ltd, a subsidiary of Nutricare Holdings, took effect;

(b)    whether the Second Circulating Resolution [described at [12] of the primary judgment] was valid; and

(c)    whether the resolutions passed at the Extraordinary General Meeting on 12 October 2020 were valid [described at [15] of the primary judgment].

5    Several things should be noted about these issues. First, until about 9 October 2020, Mr Dutton and Nutricare Holdings were the active respondents in the proceeding. For convenience, I will refer to both those respondents jointly as Mr Dutton except where the context requires otherwise. From that date, including the urgent trial that was conducted on 29 October 2020, Mark Casey replaced Mr Dutton in that role. For the avoidance of confusion, all references to “Mark Casey” in these reasons are references to the company.

6    Secondly, at the trial of the proceeding, Mark Casey elected not to pursue issue (a)(i) above. Thirdly, issues (a) and (b) were interrelated and partly concerned the former issue, namely Mr Hegde’s directorship of Nutricare Holdings. Fourthly, as will appear later in these reasons, there is also a connection between issues (a)(ii) and (b), on the one part, and issue (c) on the other. Fifthly, the resolutions passed at the 12 October 2020 Extraordinary General Meeting (the 12 October EGM) (issue (c) above) involved the appointment of four new directors to the Board of Nutricare Holdings. Mr Mark Casey, the sole director of Mark Casey, was one of those appointees and he promoted those resolutions.

7    Finally, Mr Hegde was successful on issues (a) and (b) above (see the primary judgment at [18], [29] and [30]) and Mark Casey was successful on issue (c) above (see the primary judgment at [52]) albeit unsuccessful on some aspects of that issue as discussed later in these reasons.

8    Against this background, the following is a summary of the competing sets of costs orders sought by Mr Hegde, Mr Dutton and Mark Casey:

Mr Hegde

(a)    James Dutton and Nutricare [H]oldings should pay [his] costs of the application on an indemnity basis until 8 October 2020;

(b)    [Mark Casey] should pay [his] costs from 8 October 2020 to the conclusion of trial as follows:-

i.    On an indemnity basis in respect of …

   [(a)    whether [he] had resigned as a director;

    (b)    whether the resolution of the 24 August 2020 was valid;

(c)    whether the ASIC register should be rectified to record [him] as a director]; and

ii.    On a standard basis in respect of …

[(d)    whether the resolution of 12 October 2020 was valid;

(e)    whether [Mark Casey] could rely upon the reserve powers of the shareholders in order to approve the appointment of the four (4) new directors.]

Mr Dutton

[T]hat he be awarded costs on a party and party basis from the date of the expiry of the first and second Dutton offers, being 5pm on 27 August 2020. Alternatively … that the parties bear their own costs in the proceeding.

Mark Casey

[Mark Casey’s] primary position is that [Mr Hegde] should pay [its] costs:

(a)    on an ordinary basis until 1pm Sydney time on 27 October 2020 (being the time of expiry of a Calderbank offer made to Mr Hegde); and

(b)    thereafter, on an indemnity basis.

[A]lternatively … there should be an apportionment of costs [as follows]:

(a)    in respect of the issue of whether Mr Hegde resigned as a director of Nutricare [Holdings], that each party should bear its own costs; and

(b)    otherwise, Mr Hegde should pay [Mark Casey’s] costs:

(i)    on an ordinary basis until 1pm on 27 October 2020; and

(ii)    thereafter, on an indemnity basis.

9    As can be seen from the terms of these proposed orders, they engaged a number of offers of compromise that were variously made to, and not accepted by, one or other of the parties. Mr Hegde attached to his primary costs submissions a document entitled “Chronology of Offers between the Parties”. That chronology was extracted from an affidavit made by his lawyer, Mr Benjamin Rooks, filed in support of Mr Hegde’s costs application.

10    In his submissions on costs, Mr Dutton accepted that Mr Rooks’ affidavit “adequately encapsulates the relevant communications between the parties”. However, he did not accept that Mr Hegde’s chronology recorded all of the offers emanating from him and he contended that many of the entries did not amount to offers at all. Mr Dutton set out, in his submissions, the terms of seven offers which he claimed were made during the course of the proceeding: six by him or Nutricare Holdings (the Dutton offers) and one by Mr Hegde. From a comparison between Mr Hegde’s chronology and Mr Dutton’s description of the seven offers, it appears that the first and sixth Dutton offers are not included in Mr Hegde’s chronology.

11    For its part, Mark Casey did not specifically address Mr Hegde’s chronology. However, it implicitly accepted the accuracy of the description of the only offer with which it was concerned, namely the last item on that chronology relating to its offer to Mr Hegde of 26 October 2020.

12    Since it summarises the communications which passed between the parties which may constitute an offer of compromise of the proceeding, it is convenient to adopt Mr Hegde’s chronology for the purpose of these reasons. However, to address the concerns raised by Mr Dutton, it is appropriate to insert the details of the two missing offers mentioned above and to identify the other offers to which he refers in the terms used in his submissions. It should also be noted that, as the content of some of these communications is pivotal to the issues to be determined in respect of the costs of this matter, I will set them out verbatim later in these reasons. The resulting amended chronology (the chronology) is as follows:

CONTENTIONS

13    Mr Hegde began his primary submissions by contending that, in determining the various issues of costs, it was important to consider “the entirety of the proceedings and the approach adopted by the individual parties as the proceedings progressed”. He then proceeded to review various aspects of Mr Dutton’s and Mark Casey’s conduct in the proceeding which he claimed was unreasonable. With respect to Mr Dutton, he claimed that included his rejection of his (Mr Hegde’s) attempts to resolve the dispute with respect to his directorship before he filed his originating application, Mr Dutton’s conduct in causing the 24 August 2020 Circulating Resolution to be passed and his continuing opposition to the relief sought in his initial and amended originating application from late August 2020. He claimed it was in this context that, on 23 September 2020, he responded to Mr Dutton’s offers of 21 and 23 September and agreed “to consent [to] orders on the basis that [his] application be dismissed and that Mr Dutton and Nutricare [Holdings] pay his costs on a standard basis”. He claimed that, having regard to the findings made in the primary judgment, that was “a reasonable and sensible offer” and, as such, it should have been accepted by Mr Dutton. He implied that, as a result, on 7 October 2020, “settlement had been reached with [Mr] Dutton and Nutricare [Holdings] save for the issue of costs”. Accordingly, he contended that Mr Dutton and Nutricare Holdings should pay his costs of the proceeding on an indemnity basis.

14    As for Mark Casey’s unreasonableness, he claimed in his primary submissions that, on 7 October 2020, Mark Casey’s lawyers advised that “it had viewed the proposed consent orders circulated that day and … that it was considering intervening in the proceedings to challenge the orders sought by [Mr Hegde]”. He claimed that, from this “first communication onwards, [it] opposed all of the orders sought by [him] including whether the ASIC register ought be rectified”. At the conclusion of Mr Hegde’s primary submissions, he contended that, as a consequence of Mark Casey’s intervention, the following five issues fell to be determined at trial:

(a)    whether [Mr Hegde] had resigned as a director;

(b)    whether the resolution of … 24 August 2020 was valid;

(c)    whether the ASIC register should be rectified to record [Mr Hegde] as a director;

(d)    whether the resolution of 12 October 2020 was valid;

(e)    whether [Mark Casey] could rely upon the reserve powers of the shareholders in order to approve the appointment of the four (4) new directors.

15    Mr Hegde contended that he was ultimately successful with respect to issues (a) to (c) above and, while Mark Casey was ultimately successful in respect of issues (d) and (e), that success related to a “discretionary matter which were [sic] not raised until submission of the concise statements. Moreover, it was found that part of the claim in respect of the EGM was unsustainable”.

16    Mr Hegde developed these contentions to a considerable extent in his submissions in reply. There he summarised his position at the outset with respect to the conduct of both Mr Dutton and Mark Casey in the proceeding in the following terms:

…

2.    But for the conduct of [Mr] Dutton prior to 8 October 2020 and then [Mark] Casey thereafter, [he] would not have been required to bring [his] application. Both prior to bringing the application, and then prior to [Mark] Casey continuing the proceedings in circumstances where the matter had otherwise settled, [Mr Hegde] took reasonable steps to resolve the matter and avoid incurring the costs ultimately incurred.

3.    The conduct of [Mr] Dutton and [Mark] Casey was manifestly unreasonable as evinced by [him] ultimately achieving all relief sought in both his initial and Amended Originating Application and the majority of the relief sought in his Further Amended Originating Application, save for:

(a)    being unsuccessful on a discretionary matter that was not raised prior to trial; and

(b)    even then, being partially successful on its contentions against the validity of the 12 October EGM.

(Footnotes omitted)

17    In the succeeding paragraphs of those submissions, he elaborated his criticisms of Mr Dutton’s conduct “prior to bringing [his] application”. He claimed that included his unreasonable failure to agree to his request of 13 August 2020 (item 1 of the chronology) and his unreasonably failing to avail himself of the opportunity to consent to the orders sought in his originating application once it was served on him. Accordingly, he reiterated his claim that this unreasonable conduct justified an order for indemnity costs being made against Mr Dutton.

18    As for the six Dutton offers, he claimed that they were not “valid offers to compromise but rather were demands for capitulation”. In this respect, he claimed that the first to third Dutton offers failed to address his claim that the Australian Securities and Investments Commission (ASIC) register regarding his directorship should be corrected retrospectively. It should be noted that the correction of the ASIC register was a central plank in the original relief sought by Mr Hegde and that matter was encapsulated in issue (a)(i) above (see at [4]) as alluded to at [18] of the primary judgment).

19    Relatedly, he claimed that the fourth and fifth Dutton offers failed to acknowledge “the invalidity of the appointments of Messrs Casey, Tauschek, Attasi [sic] and Borison [sic] … by the Circulating Resolution of 24 August 2020”. By comparison, he claimed that his “Hegde offer” of 3 September 2020 (item 6 of the chronology) addressed this issue. Furthermore, he claimed that:

The Hegde offer of 3 September 2020 further was a real offer to compromise as it left open the possibility for the appointment[s] of [Messrs Casey, Tauschek and Atassi and Ms Boribon] in a manner that would have rendered those appointments valid (and, in fact, was ultimately the manner by which those appointments were made). While on its face this appears an invitation for [Mr] Dutton to surrender, it triggers the indemnity costs mechanism by virtue of the frivolous or vexatious nature of [Mr] Dutton’s resistance to the application.

(Footnote omitted)

20    In support of the latter contention, he cited the following observations of the New South Wales Court of Appeal in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 (Regency Media) at [31]:

An offer which is in substance an invitation to surrender can result in the successful triggering of the indemnity costs mechanisms under the rules. (See r 20.26(2); Leichhardt Municipal Council supra at [36]-[37], [40].) However, as Basten JA suggests in Robb Evans supra at [20], the claim or defence would have to approach something of the character of being frivolous or vexatious for that to be the case. (See also Hancock v Arnold supra at [17].) If it were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case. These proceedings were not of that character, as indicated by the success which the respondent had at first instance.

21    In the alternative, he contended that, since he had achieved an outcome at least as favourable as his offer of 3 September 2020, Mr Dutton ought to pay his costs:

(a)    On the standard basis from the commencement of the proceeding to the time of [that] offer; and

(b)    Thereafter, on an indemnity basis, which [Mr Hegde] submits runs from 7 September 2020 (being a reasonable time for acceptance of [that] offer in the circumstances) to 8 October 2020.

(Footnotes omitted)

22    Finally, he sought to respond to Mr Dutton’s criticism of the form of his offers by relying on the “expedited nature of the proceeding”.

23    Turning to Mark Casey, as can be seen at [16(3)] above, in Mr Hegde’s submissions in reply he also characterised its conduct in intervening in, and continuing the proceeding, as “manifestly unreasonable”. He contended that “[b]ut for [Mark] Casey electing to join the proceeding, the matter would have been settled by 9 October 2020 and [he] would not have incurred costs from that date (nor would [Mark] Casey)”. He added that “[i]ndeed, [he] wrote to [Mark] Casey on 8 October 2020 [item 13 of the chronology] foreshadowing he would seek his costs of the application in the event [Mark] Casey were to seek and be granted leave to join the proceedings”. He then claimed that, since he:

… was ultimately successful in achieving all relief sought as at the date of [Mark] Casey’s joinder to the proceeding, particularly in light of the fact a settlement had otherwise been agreed by the parties at that date, it was manifestly unreasonable for [Mark] Casey to force [him] to incur costs from the date of its joinder to the proceeding until trial …

24    Mr Hegde’s contentions with respect to Mark Casey’s offer of 26 October 2020 were, to my mind, somewhat disjointed and confusing. That is so partly because they were not expressed, as one would expect, by reference to the issues identified in the primary judgment and the conclusions reached with respect to those issues; and partly because they purported to adopt the position he took with respect to Mr Dutton’s offers without accommodating the differing circumstances affecting the two sets of offers. Nonetheless, it would appear from his primary submissions and his submissions in reply that his position on that offer is as follows. It was not unreasonable for him not to accept it because it only related to issue (a)(i) and issue (c) and it did not address issues (a)(ii) and (b) (see the issues set out at [4] above). Consequently, he claimed he was required to proceed with, and succeed on, issues (a)(ii) and (b) at trial. Furthermore, his success on those two issues ultimately affected the outcome of issue (c). First, it meant that Mark Casey failed with respect to those parts of the four resolutions put to the 12 October EGM that sought ratification of the appointments made by the second Circulating Resolution of 24 August 2020 (see the primary judgment at [33] and [30]). Secondly, it meant that Mark Casey also failed with respect to its contentions that the proposed appointees had been properly nominated in accordance with Article 8.5 of Nutricare Holdings’ constitution (see the primary judgment at [39] and [40]). Consequently, he contended, to succeed on issue (c), Mark Casey was forced to rely on its alternative fall-back position as described in the primary judgment at [41]. Finally, with respect to that offer, he contended that the period of “mere hours” which Mark Casey allowed him to respond to it was not reasonable, thus making his non-acceptance of it not unreasonable.

25    In his submissions, Mr Dutton relied on the six offers he claimed he made to Mr Hegde and the ineffectiveness of the offer Mr Hegde made to him as described in the chronology above. From those offers, he distilled the following propositions:

(a)    [He] made numerous attempts to offer what was the sole relief sought by Mr Hegde in his Originating Application, and what was ultimately ordered (viz, his reinstatement as a director).

(b)    Once the Amended Originating Application was filed, [he] also took a pragmatic approach to both the proceeding and the fact that the general meeting would precede it, attempting to navigate the position he found himself in (viz, with a dispute vis-à-vis Mr Hegde’s resignation and the practicality of the general meeting having been called to resolve those very issues).

(c)    In the first four offers, [he] agreed to bear his own costs, only requiring that his costs be paid by the fifth offer, before then suggesting in the sixth offer that the issue of costs be reserved.

(d)    Conversely, the only offer made by Mr Hegde contained no element of real compromise, and included that his costs be paid.

(Italics in original)

26    Further to (d) above, he contended that Mr Hegde’s offer did not meet the criteria for a Calderbank letter under Part 25 of the Federal Court Rules 2011 (Cth) (the Rules) because it did not state that it was an offer made in accordance with that Part, citing Trenfield, In the matter of ACN 089 008 668 Pty Ltd (in liq) v JMD Park Pty Ltd (No 2) [2020] FCA 45 (Trenfield) per Derrington J. On this aspect, it is convenient to note that Mr Dutton did not claim that any of his offers met that criterion.

27    In its submissions, Mark Casey’s primary position was that, up to 1.00 pm on 27 October 2020, when its offer of 26 October 2020 expired, the costs should follow the event on the third issue, namely issue (c) above, and be ordered against Mr Hegde, even though it failed on his claim that his “directorship was automatically vacated on 29 May 2020”. In putting this contention, it claimed that it was pursuing a “single outcome”, namely that the four new directors were validly appointed. That being so, it contended that “[t]he mere fact that a court does not accept all of a successful party’s arguments does not make it appropriate to deal with costs on an issue by issue basis”, citing The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8].

28    As for the costs after 1.00 pm on 27 October 2020, it contended they should be awarded on an indemnity basis because its offer of 26 October 2020 was reasonable and Mr Hegde’s non-acceptance of it was unreasonable. In this respect, it claimed that the standard of unreasonableness was not high, citing Pinnacle Runway Pty Ltd v Triangl Limited (No 3) [2020] FCA 1379 at [74] per Murphy J. Further, relying on the factors listed by the Full Court in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 (Anchorage) at [7], it contended that:

(a)    [T]he terms of the rejected offer are equivalent to the outcome that [it] in fact achieved in the litigation. This is a significant factor.

(b)    The offer was expressed to be made in accordance with the Calderbank principles.

(c)    The offer was in clear terms and there was no request to clarify it.

(d)    By offering Mr Hegde to keep his position as a director, and for [it] to bear its own costs, the offer was a genuine compromise.

(e)    At the time the offer was made (after the mediation and 3 days before trial), Mr Hegde was in a position to assess the merit of the offer.

(f)    In assessing the time available for Mr Hegde to accept the offer, it is necessary to consider the extremely compressed timetable towards which the parties were working, and the fact that the offer did not involve monetary sums, but clear-cut outcomes based on the composition of board members. Mr Hegde made no request for an extension of time to consider the offer.

(Footnotes omitted)

29    Mark Casey provided five reasons why it contended Mr Hegde’s success on issues (a)(ii) and (b) should not deprive it of its costs. They may be summarised as follows:

(a)    First, it made it clear in its concise statement in reply dated 19 October 2020 and thereafter, including at the trial, that it did not oppose Mr Hegde remaining on Nutricare Holdings’ Board alongside the four new appointees.

(b)    Secondly, it only contended that Mr Hegde’s directorship was automatically vacated on 29 May 2020 in support of the Circulating Resolution dated 24 August 2020 (issue (b)) describing that as “an alternative route” to its ultimate success on issue (c).

(c)    Thirdly, further to the above, it contended that the argument on issue (b) was only a legal argument and did not require any party filing any additional evidence beyond that which had already been filed by the time it applied to intervene in the proceeding on 9 October 2020.

(d)    Fourthly, because Mr Hegde had in his originating application sought a declaration that he had never resigned as a director, it was necessary for him to bring this proceeding in any event to satisfy the Court of the appropriateness of making that declaration.

(e)    Fifthly, and finally, it contended that Mr Hegde did not file any additional evidence after it applied to intervene in the proceeding on 9 October 2020.

30    In support of its alternative position for an apportionment of the costs on an issue basis, in addition to reiterating its contentions about the unreasonableness of Mr Hegde’s rejection of its offer of 26 October 2020 (see at [28] above) and reiterating reasons (d) and (e) above, it submitted that Mr Hegde raised his issue about his directorship on 24 August 2020 when he filed his originating application and that was well before it became involved on 9 October 2020. Finally, Mark Casey contended that, in any event, it should not be made liable for any of Mr Hegde’s costs before its intervention on 9 October 2020 and after its offer on 26 October 2020 expired at 1.00 pm on 27 October 2020. It should be noted that Mr Hegde agreed with the former contention in his submissions in reply.

CONSIDERATION

Two stages to the proceeding

31    The history of this proceeding and the contentions of the parties summarised above disclose that it proceeded in two stages. The first stage began on or about 24 August 2020 when Mr Hegde filed his originating application and it ceased on or about 9 October 2020 when Mark Casey filed its interlocutory application seeking to intervene in the proceeding. Noting that there was an overlap of some days at the end of the first stage, the second stage began at or about the time Mark Casey’s application was filed and continues to the present time.

32    In the first stage, the main protagonists were Mr Hegde, on the one part, and Mr Dutton and Nutricare Holdings on the other. Mr Smithson, the third respondent, was the other director of Nutricare Holdings between 13 August 2019 and 23 August 2020 when he resigned (see primary judgment at [7] and [10] respectively). However, he did not take an active role in the proceeding.

33    In the second stage, the main protagonists were Mr Hegde and Mark Casey. The existing respondents mentioned above and the other respondents who were joined at the same time as Mark Casey all either filed submitting appearances shortly before the trial of the proceeding in late October 2020, or took no part at that trial.

34    Since the contentions of the parties sought to address the costs issues in the proceeding by reference to these two stages it is convenient to take the same approach in these reasons. However, this approach should not be taken as a rejection of Mr Hegde’s submissions about the need to consider the entirety of the proceeding and the approach adopted by each party during it.

The basic principles

35    It has been said many times that this Court has a broad discretion under s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA) to award costs, that costs usually follow the event and that, while the discretion to award costs is unconfined, it must be exercised judicially and there are well-established principles guiding its exercise (see most recently ALDI Foods Pty Limited as General Partner of ALDI Stores (A Limited Partnership) v Transport Workers’ Union of Australia [2020] FCAFC 231 at [86]-[88]).

The first stage up to 9 October 2020

Should an indemnity costs order be made against Mr Dutton and Nutricare Holdings?

36    It is convenient to deal, first, with the indemnity costs order sought by Mr Hegde against Mr Dutton and Nutricare Holdings. To justify that order, Mr Hegde needs to point to some “special or unusual feature” in the case. That may include “the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, the making of allegations which ought never to have been made, or the undue prolongation of a case by groundless contentions” (see Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 (The MTGI Trust) at [17], Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 per Sheppard J and Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [135])).

37    A failure to accept a Calderbank offer, or an offer of compromise, may constitute such a special or unusual feature justifying an order for indemnity costs (see The MTGI Trust at [21]-[22]). However, the person seeking that order needs to establish that its offer was reasonable and the non-acceptance of it was unreasonable. That involves a broad ranging inquiry with respect to all the relevant circumstances (see CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75] and Anchorage at [6] and [8]).

38    In Anchorage, the Full Court provided the following non-exhaustive list of factors to be taken into account in determining whether the non-acceptance of an offer was unreasonable (at [7]):

…

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

39    In Trenfield, Derrington J explained why factors [7(e)] and [7(f)] above are important. As for the clarity required by [7(e)], his Honour said (at [12]):

… The making of an offer to settle an action is an offer to enter into a contract, on the acceptance of which the parties will be bound. Necessarily, an offer to settle should be drafted in an intelligible way to ensure that, upon its acceptance, the agreement between the parties is reasonably ascertainable …

40    As for the notification required by [7(f)], his Honour said it was important because, without it, the offer lacked the “essential ingredient” necessary to support an indemnity costs order, namely “the indication by the offeror that the letter might be deployed as a basis for seeking a special costs order in the event of that party’s ultimate success in the action” (see also Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188 at [57] per Barrett JA).

41    Finally, it is necessary to consider whether the offer contains a genuine element of compromise of the proceeding. That is particularly so where the offer represents a “walk away” offer (see Associated Steamships Pty Ltd v Seafarers Safety, Rehabilitation and Compensation Authority (No 2) [2020] FCA 853 at [22]-[23]).

42    Mr Hegde did not identify, at least in such terms, the “special or unusual feature” he was relying on to justify the indemnity costs against Mr Dutton. Instead he referred to, what he described as, the unreasonable conduct of Mr Dutton in the proceeding, both before and after he filed his originating application, and then amended it, leading up to the exchange of offers and proposed consent orders in late September and early October 2020. He also claimed that none of the Dutton offers were valid essentially because they failed to address the crucial aspects of the relief sought in his initial and amended originating application. On the other hand, he claimed that Mr Dutton’s non-acceptances of his offers of 3 September 2020 and 23 September 2020 were unreasonable.

43    I do not accept the first and last of these contentions. It is convenient to begin with the latter. Neither of those offers made any reference to the offer to compromise provisions of Pt 25 of the Rules, nor was either expressed to be of the Calderbank type. In that event, neither contained the “essential ingredient” mentioned above. This provides a sufficient reason in itself to reject Mr Hegde’s contention that Mr Dutton’s non-acceptance of them was unreasonable.

44    Even if that were not so, I do not consider either constituted a proper offer of compromise of the proceeding. First, with respect to Mr Rooks’ email of 3 September 2020 (item 6 of the chronology), I consider it did not constitute an offer as such, but rather put forward a proposed basis upon which settlement negotiations might proceed. That is so because the five point proposal contained in that email was prefaced by an observation that the parties appeared to be “at cross purpose[s]” and a suggestion that “the previous position [be] restored”. It was then followed by the request: “Would you please let us know if your client agrees to the above”. It was not, therefore, an offer to enter into a binding contract on those terms, but rather put forward a framework for negotiations directed to achieving that end.

45    Furthermore, even if that email constituted an offer to enter into a binding contract to compromise the proceeding, I consider that offer was, by its terms, essentially a “walk away” offer. That is so because it required Mr Dutton to capitulate on every aspect of the proceeding including, most importantly, Mr Hegde’s recently introduced claim relating to the appointment of the four new directors (see item 4 of the chronology). In this respect, it is important to note that the eligibility of those four persons for appointment as directors was not a term of the settlement that was eventually reached between Mr Dutton and Mr Hegde on or about 8 October 2020 (see at [47] below). Instead, while that issue was initially raised by Mr Dutton (see items 2 and 3 of the chronology) and then taken up by Mr Hegde (see items 4 and 10 of the chronology), it was eventually left to Mark Casey to pursue following its intervention in the proceeding and it was ultimately resolved in its favour in the primary judgment. Specifically, while Mark Casey failed on some aspects of the issue (see at [39]-[40] of the primary judgment), it ultimately succeeded in having the four appointments confirmed without the necessity for those appointees to hold any particular qualifications (see at [50]-[51] of the primary judgment).

46    Mr Hegde’s offer of 23 September 2020 (see item 9 of the chronology) suffers from both similar and different defects. First, with respect to the latter, that offer is entirely dependent on the terms of the “consent orders” to which it refers and there is no evidence in Mr Rooks’ affidavit, or elsewhere, as to what those terms were. That being so, the offer lacked the requisite clarity necessary for its acceptance to result in a binding agreement.

47    This lack of clarity is particularly evident when one compares the term “consent orders” in the 23 September 2020 offer with the detailed list of matters in the 3 September 2020 email (item 6 of the chronology). It is also to be noted that, unlike the 23 September 2020 offer, both the 23 September 2020 email and the fourth and fifth Dutton offers (items 7 and 8 respectively of the chronology – which appear to have been in identical terms) deal with the correction of the ASIC register, which, perversely, was a central plank of the relief sought in Mr Hegde’s originating application. Lastly on this aspect, it is informative to consider the extent and details of the matters that were addressed in the Minutes of Order that eventually formed the basis of the agreement reached between Mr Hegde and Mr Dutton on or about 8 October 2020 (see items 11 and 12 of the chronology). The Minute of Orders which reflected that agreement was in the following terms:

1.    Pursuant to s1322(4)(a) of the Corporations Act 2001 (Cth) the Court declares that:

(a)    The Applicant has never resigned as a director of the First Respondent; and

(b)    The Resolution made on or about 25 August 2020 by which the First Respondent purported to appoint the following individuals as directors of the First Respondent is invalid and of no effect:

(i)    Mark James Casey;

(ii)    Mike Tauschek;

(iii)    Hammad Atassi; and

(iv)    Kimberlee Anne Boribon.

2.    Pursuant to s1322(4)(b) of the Corporations Act 2001 (Cth), the Court orders that within 14 days of the date of these orders the ASIC register be amended to reflect the matters in order 1 hereof.

3.    The Applicant to file and serve any materials and submissions (limited to 5 pages) by 4pm on costs by 12 October 2020.

4.    The Respondents to file and serve any responsive materials and submissions (limited to 5 pages) by 4pm on [5 business days later][.]

5.    The Applicant to file and serve any materials and submissions (limited to 3 pages) in reply by 4pm on [3 business days later][.]

48    Alternatively, if the abovementioned objection were overcome by confining the terms of the “consent orders” referred to in the 23 September 2020 offer to the two matters mentioned, namely the dismissal of the proceeding and the payment of costs, then, for similar reasons to those set out above, I agree with Mr Dutton’s contention that it did not contain a real element of compromise, but rather, like the 3 September 2020 email, constituted a “walk away” offer.

49    Finally, I do not consider the observations of the New South Wales Court of Appeal in Regency Media set out at [20] above, upon which Mr Hegde has relied, affect these conclusions. Specifically, in the circumstances of the exchanges of communications that occurred between late August and early October 2020, including the matters outlined above, I do not consider Mr Hegde has established that Mr Dutton’s resistance to his application was relevantly frivolous or vexatious. For these reasons, I do not consider either of Mr Hegde’s so-called offers comprised the special or unusual feature that would justify an order for indemnity costs being made against Mr Dutton or Nutricare Holdings.

50    I turn, finally, to explain why Mr Hegde’s first contention above (at [42]) cannot be accepted, namely his claim that Mr Dutton’s unreasonable conduct in the proceeding justifies an indemnity costs order being made against him. First, I consider that the communications that passed between Mr Hegde and Mr Dutton before and after this proceeding commenced leading up to the agreement that was reached on or about 8 October 2020 to compromise the proceeding all formed part of a continuing process of negotiation directed to achieving that agreement. In that context, I do not consider it is reasonably open to Mr Hegde to extract a particular communication and/or item of conduct associated therewith and characterise it as unreasonable. That, all the more so, where both parties have used that same tactic to characterise the conduct of the other as unreasonable and where each has described some, or all, of the offers put forward by the other in that process as demands for capitulation. All this must be understood against the background mentioned earlier where neither party was willing to submit to the discipline required to bring any of their communications within the regime established by Part 25 of the Rules or to invest the time and effort to draft them as a Calderbank offer. For these reasons, I reject Mr Hegde’s contentions with respect to the unreasonableness of Mr Dutton’s conduct in this proceeding. It follows that Mr Hegde has not established the special or unusual feature necessary to justify an order for indemnity costs against Mr Dutton and Nutricare Holdings.

Should either Mr Hegde or Mr Dutton be ordered to pay the other’s costs of this proceeding?

51    The conclusions reached above mean that the dispute between the parties with respect to costs is essentially reduced to the question of whether the settlement achieved by the exchange of emails on or about 8 October, save as to costs, justifies one of them being ordered to pay the other’s costs of this proceeding.

52    Rarely will it be appropriate for a court to conduct a trial on the merits of the substantive issues in a proceeding in order to decide where the liability for costs should fall (see Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201 per Hill J). Instead, in that situation, the usual order will be that each party is to bear its own costs. However, as McHugh J observed in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625:

… the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201] …

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried … But such cases are likely to be rare.

(Emphasis added; footnote citations included)

See also Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd (ACN 008 650 628) (2010) 265 ALR 112; [2010] FCAFC 16 at [117]-[119] and Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17 at [22].

53    As to the first part of these observations, I have already concluded that Mr Dutton did not act so unreasonably in connection with this proceeding as to justify an order for indemnity costs being made against him. In the circumstances outlined above, I also do not consider that conclusion is open to justify a standard order for costs being made against him. As to the inverse position, I do not consider the matters identified by Mr Dutton in his submissions (at [25] above) demonstrate that Mr Hegde acted so unreasonably that he should be ordered to pay Mr Dutton’s costs of this proceeding.

54    That leaves the second part of the observations above, namely that one party was almost certain to have succeeded. In that respect, this case involves an unusual feature. It is that, since the settlement that was reached between Mr Hegde and Mr Dutton on or about 8 October 2020, a trial on the merits of most of the issues in the proceeding has, in fact, occurred. That followed the intervention of Mark Casey in the proceeding on or about 9 October 2020. As a consequence, Mr Hegde is able to claim that he is certain to have succeeded on the issues he raised against Mr Dutton in his amended originating application, namely issues (a) and (b).

55    On the other hand, a comparison of the ultimate orders made following the trial (at [1] above) and the terms of the Minutes of Orders reflecting the settlement reached between Mr Dutton and Mr Hegde on or about 8 October 2020 (at [46] above) shows that Mr Dutton was willing, as at that date, to consent to orders in substantively the same terms, subject to costs.

56    Each party is therefore able to advance a solid ground upon which he should obtain an order for costs of the proceeding against the other. Conversely, each can claim it would be quite unfair for him to be ordered to pay the other’s costs. In those circumstances, having regard to all the matters mentioned above, I consider the most fair and appropriate order is that each of Mr Hegde and Mr Dutton should bear his own costs of the proceeding.

The second stage since 9 October 2020

Should an indemnity costs order be made against Mr Hegde?

57    Again, it is appropriate to deal, first, with the indemnity costs order sought by Mark Casey against Mr Hegde. The offer upon which that order is based was contained in a letter dated 26 October 2020 from Mark Casey’s lawyers to Mr Hegde’s lawyers, as follows:

Without prejudice save as to costs

1.    We refer to previous correspondence in this matter, which we note is listed for hearing this Thursday 29 October 2020.

2.    We note the following circumstances:

(a)    James Dutton’s position as a director of Nutricare Holdings Limited (Nutricare [Holdings]) is not under any challenge in the above proceedings.

(b)    Mr Hegde’s position as a director of Nutricare [Holdings] is in question in the proceedings.

(c)    Mr Hegde is challenging the appointment of the four new directors in the proceedings, namely Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon (New Directors).

(d)    The majority of shareholders of Nutricare [Holdings] have voted, only two weeks ago, to ratify the appointment of, or appoint, the four New Directors to the Nutricare [Holdings] board.

(e)    Nutricare [Holdings] urgently needs confirmation of the composition of its board, so as to be able to finalise its annual accounts and proceed with a capital raise in the next month or so. If it cannot do so, the viability of the business is in jeopardy, to the detriment of all shareholders, as well as [Nutricare Holdings’] employees, contractors and creditors.

(f)    If Mr Hegde obtains the relief he seeks in the proceedings, Nutricare [Holdings] will be left with two directors, being Mr Dutton and Mr Hegde. The Nutricare [Holdings] Constitution requires that Nutricare [Holdings] have at least three directors. In the event that their number falls below that minimum, the only action permitted for the remaining director/s is to appoint additional director/s. However, Mr Hegde has acknowledged his difficulty in working with Mr Dutton and it appears that Mr Hegde and Mr Dutton will not be able to agree on any new appointee/s. As a result, if Mr Hegde obtains the relief he seeks in the proceedings, the result will be very damaging, if not disastrous, to Nutricare [Holdings] and its shareholders.

(g)    Alternatively, if [Mark Casey] obtains the relief it seeks (whether or not Mr Hegde remains a director) the board can function and the capital raising can proceed, to the benefit of all shareholders. Nutricare [Holdings] will be stabilised, creating the opportunity for the shareholders (if they wish) to make any changes they desire to the composition of the board.

(h)    To the extent that there has been irregularity in connection with calling and the conduct of the recent general meeting, it is plainly a procedural irregularity. There has been no substantial injustice. The fact that more than 50% of the shares on issue voted, by proxy, in favour of the resolutions demonstrates that the outcome could not have been changed even if Mr Hegde had not mistaken the start time of the meeting. That level of support also demonstrates that the majority of shareholders were perfectly comfortable in assessing the suitability of the new directors In the period between the notice of and the holding of the meeting.

(i)    Particularly in light of the outcome which would flow from the relief sought by Mr Hegde (see paragraphs (e) and (f) above), the basis for curative relief under section 1322 of the Corporations Act 2001 is amply demonstrated.

(j)    [Mark Casey] notes the criticisms made by Mr Hegde of Mr Dutton, and by Mr Dutton about Mr Hegde. Insofar as Mr Hegde wishes to see Mr Dutton removed as a director, that is not a matter within [Mark Casey’s] power. [Mark Casey] does not have sufficient information about the facts to form a view on either side of the allegations, although it is willing to have the allegations investigated once Nutricare [Holdings] has been stabilised.

(k)    [Mark Casey] will not contemplate any resolution to the proceedings which disregards the plainly and recently expressed wishes of the majority of shareholders. It considers that all directors of Nutricare [Holdings] need to be firmly focussed on immediately stabilising the company to raise further capital, which is plainly in the company’s best interests. However it seems to [Mark Casey] that Mr Hegde’s conduct in continuing to prosecute this case – in his capacity as a shareholder – runs directly contrary to this goal. Mr Hegde’s duties as a director (to advance the interests of the company) thus conflict with the effect of his conduct as a shareholder in pursuing this case. In addition, by seeking to remove the four New Directors, Mr Hegde seeks to contradict the clear decision of the shareholders at the EGM on 12 October 2020. While these matters are concerning in the extreme, in recognition of Mr Hegde’s substantial shareholding in Nutricare [Holdings], [Mark Casey] is prepared to compromise these proceedings on the basis that Mr Hegde remains on the board – but only on the basis that the status quo is otherwise maintained, such that all other five directors also remain on the board.

(l)    In conducting this urgent litigation, [Mark Casey] has to date incurred over $100,000 in costs and disbursements, and expects that figure to rise to over $150,000 by the end of the hearing (both figures excluding GST).

3.    Against this background, in a final attempt to put an end to the costs and distraction of these proceedings, we are instructed to confirm that [Mark Casey] is prepared to settle the proceedings on the following terms:

(a)    [Mark Casey] will not pursue the line of argument that Mr Hegde is no longer a director of Nutricare [Holdings];

(b)    Mr Hegde will not pursue his challenge to the validity of the appointment/ratification of the appointment of the New Directors;

(c)    The proceedings be dismissed. As we understand that all other respondents have filed or will have filed submitting appearances, they will be bound by this outcome;

(d)    Each of our respective clients bear his or its own costs.

4.    This offer is made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. Given that [Mark Casey] is continuing to incur costs on urgent court preparations, this offer will remain open until 1.00pm Sydney time tomorrow 27 November 2020 [sic] and will then lapse.

5.    If any aspect of this offer is unclear, please contact the writer. If Mr Hegde considers he requires more time to consider the offer, bearing in mind the imminence of the proceedings and rapidly escalating costs, please contact the writer. If Mr Hegde does not accept this offer and is unsuccessful in the proceedings, [Mark Casey] intends to rely on this letter on the question of costs, including in seeking an order that Mr Hegde pay [Mark Casey’s] costs on an indemnity basis.

(Emphasis and errors in original)

58    It can be seen from the terms of this offer that it was expressed to be a Calderbank type offer with possible consequences as to costs (see [57(4) and (5)]). It also contained a relatively detailed explanation of Mark Casey’s position in the litigation (see [57(2)]). Finally, it offered Mr Hegde an opportunity to seek an extension of time to respond, or to seek clarification of its terms. While there is no evidence in Mr Rooks’ affidavit of Mr Hegde’s response to this offer, it appears from the submissions to be common ground that he did not make any response at all.

59    The other document of relevance to this issue is Mark Casey’s Concise Statement filed 19 October 2020, particularly “The Relief Sought From The Court” and “The Primary Legal Grounds For The Relief Sought” sections of it. Those sections were in the following terms:

B. THE RELIEF SOUGHT FROM THE COURT

16.    [Mark Casey] seeks the following relief, together with an order for its costs:

(a)    the dismissal of Mr Hegde’s further amended originating application filed on 16 October 2020 with costs;

(b)    a declaration that, from at least the time of the circular resolution signed by Mr Dutton on 24 August 2020, or alternatively the general meeting held on 12 October 2020, the Directors of Nutricare Holdings … have been, and remain:

(i)    James Dutton, Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon; or

(ii)    alternatively, the individuals referred to in paragraph 16(b)(i) immediately above, together with Mr Hegde;

(c)    to the extent necessary (if at all) to support the declaration referred to in paragraph 16(b) immediately above, an order under s 1322 of the Corporations Act 2001 (Cth);

(d)    Pursuant to s1322(4)(b) of the Corporations Act 2001 (Cth), an order that, within 14 days of these orders, the ASIC register be amended to reflect the declaration referred to in paragraph 16(b) above.

C. THE PRIMARY LEGAL GROUNDS FOR THE RELIEF SOUGHT

17.    The resolutions approved at the general meeting on 12 October 2020 were effective to ratify, or made afresh, the appointments of Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon as Directors of Nutricare Holdings … on the following basis:

(a)    the power to appoint new Directors to Nutricare Holdings … is not vested by the Constitution exclusively in the Board, but is also exercisable by members at general meeting (cl 8.5);

(b)    Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon were eligible for election at the general meeting held on 12 October 2020 by virtue of:

(i)    cl 8.5(d) of the Constitution, as they were nominated by a member of Nutricare Holdings…, namely [Mark Casey];

(ii)    further or alternatively, cl 8.5(b) of the Constitution, as they had been recommended for election earlier, namely on or around 24 August 2020, by Mr Dutton, then the sole director of Nutricare Holdings …;

(c)    to the extent there was not strict compliance with requirements in cl 8.5 of the Constitution, such non-compliance is susceptible to curative relief under s 1322 of the Corporations Act 2001 (Cth), including because:

(i)    the irregularity is procedural, has neither caused nor may cause substantial injustice, and did not involve dishonesty;

(ii)    it is just and equitable that relief under s 1322 be granted;

(d)    the factual matters supporting the grant of such relief under s 1322 in respect of any non-compliance with cl 8.5 of the Constitution include:

(i)    the relevant requirement under cl 8.5(d) is the provision of 35 business days’ notice, which is procedural in nature, and in practical reality, the shareholders were already informed of the nomination of the four candidates for appointment as Directors by no later than 18 September 2020, if not by 24 August 2020;

(ii)    the Board is currently in a state of “deadlock” at a critical juncture in the life of Nutricare Holdings …, where urgent steps need to be taken to raise capital. The appropriate corporate organ to resolve the deadlock is the membership;

(iii)    if Mr Hegde forces his short-term views on shareholders against the wishes they have clearly expressed via the outcome of the general meeting on 12 October 2020, the current “deadlock” will likely be resolved as follows:

(A)    shareholders will be forced to convene another general meeting in strict compliance with the procedural requirement of 35 business days’ notice;

(B)    consistent with the views expressed only earlier this month, an overwhelming majority of shareholders will again approve the resolutions appointing the same four individuals as Directors;

(C)    because of the need to raise capital at this critical juncture, Nutricare Holdings … will, in the meantime, be exposed to a serious risk of falling under external administration and the loss of shareholders’ investments;

(e)    in the alternative to the power under cl 8.5 of the Constitution (i.e. paragraphs 17(a)-(d) above), the general meeting had power to pass resolutions approving the appointments of Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon as Directors of Nutricare Holdings … in circumstances where the Board was in a state of “deadlock”, either as a matter of general law, or pursuant to cl 11.7 of the Constitution, or both;

(f)    contrary to Mr Hegde’s contention, there was no irregularity with the time at which the general meeting on 12 October 2020 was held, in that:

(i)    the notice of general meeting specified that the meeting would be held in the State of Victoria, being the location of the Principal Place of Business of Nutricare Holdings …, and the reference to 10:00am (EST) would reasonably be understood as 10:00am at the place where the meeting is being held;

(ii)    consistent with paragraph 17(f)(i) immediately above, in point of fact:

(A)    members of Nutricare Holdings … from Perth, Hong Kong and Los Angeles attended the general meeting at the correct time; and

(B)    the only member of Nutricare Holdings … who apparently assumed that the reference to 10:00am was a reference to that time in a place other than where the meeting would be held, was Mr Hegde;

(g)    to the extent there was any irregularity with the time at which the general meeting on 12 October 2020 was held:

(i)    cl 6.4(a) of the Constitution displaces any conclusion of invalidity;

(ii)    it is susceptible to curative relief under s 1322 of the Corporations Act 2001 (Cth), on the basis of the matters referred to at paragraph 17(c)(i) and 17(c)(ii) above;

(iii)    the factual matters supporting the grant of relief under s 1322 include:

(A)    the attendance of Mr Hegde at the general meeting could not have resulted in a different outcome, because the sheer number of proxy votes in favour of the resolutions meant that the resolutions would have been approved in any event;

(B)    Mr Hegde in advance of the general meeting disseminated to members of Nutricare Holdings … an explanatory memorandum setting out in detail his views on the resolutions to be put at the general meeting;

     (C)    the matters referred to in paragraph 17(d) above.

18.    Further or in the alternative to paragraph 17 immediately above, the circulating resolution signed by Mr Dutton on 24 August 2020 was effective to appoint Mark Casey, Mike Tauschek, Hammad Atassi and Kimberlee Boribon as Directors of Nutricare Holdings …, pursuant to cl 8.6(a) and/or cl 11.7 of the Constitution, as Mr Dutton was sole Director at the time.

(Emphasis and errors in original)

60    The principles bearing on this issue have already been outlined above and do not require reiteration. The reasonableness of Mark Casey’s offer and the unreasonableness of Mr Hegde’s failure to accept it are clearly related concepts. For the reasons that follow, I do not consider Mark Casey’s offer met either.

61    First, and most importantly, Mark Casey’s offer did not articulate the sole ground upon which it eventually succeeded, namely the reserve power of a company in general meeting to appoint directors where there was a deadlock in the board (see primary judgment at [41]). On this aspect, I do not consider Mark Casey’s reliance on [17(b)] of its Concise Statement avails it. Given that was the sole basis for its success and that it endeavoured to provide a detailed explanation for its position in the litigation at [2] of the offer, its presence in the latter and its absence from the former is particularly telling.

62    Secondly, and relatedly, Mark Casey’s proposed concession in [3(a)] and the concession it sought from Mr Hegde in [3(b)] of its Concise Statement are both ambiguous. The former obscures the connection between Mr Hegde’s currency as a director on 24 August 2020 when the Circulating Resolution was passed and the ratification component of the four resolutions put to the 12 October EGM. It is to be noted that Mark Casey ultimately failed on this issue, namely issue (b) (see the primary judgment at [30]). The latter does not clearly address the main component of the primary relief sought by Mr Hegde in his initial originating application, namely the correction of the ASIC register relating to his directorship from May 2020.

63    In this respect, two things bear noting. First, the explanation at [2] of the offer specifically mentions the former issue (see at [2(d)]), but it does not address the latter. Secondly, at trial, Mark Casey effectively conceded that the ASIC register should be corrected, but sought to keep open the timing of that step in order to pursue its argument with respect to the Circulating Resolution (see primary judgment at [18]).

64    Thirdly, and further to the above, Mark Casey’s explanation of its position in the litigation at [2] of the offer is, in my view, complex and confusing. It includes issues that were not raised in its Concise Statement or at trial, for example, Mr Hegde’s concern to remove Mr Dutton as a director (see [2(j)]) and does not include issues that were discussed in quite some detail in the Concise Statement itself (see at [59(17)]-[59(18)] above). It also describes in confusing terms issues upon which it ultimately failed at trial, for example, the application of the provisions of s 1322 of the Act to cure the irregularity with respect to the nomination of the four new directors and the primary judgment at [39]-[40]).

65    Fourthly, it appears from the email which attached the letter containing Mark Casey’s offer that it was sent at 10.40 pm on 26 October 2020. Paragraph 4 of that letter states: “Given that [Mark Casey] is continuing to incur costs on urgent court preparations, this offer will remain open until 1.00pm Sydney time tomorrow 27 November 2020 [sic] and will then lapse” (emphasis omitted). It can be inferred that Mr Hegde’s lawyers read the letter shortly after normal business hours commenced at 9.00 am on 27 October 2020.

66    I interpose to note that the reference to “November” is in error. It was plainly intended to be “October”. Accordingly, the “urgent court preparations” referred to the urgent trial in the proceeding which was due to commence on 29 October 2020. Consequently, this exigency applied equally to Mr Hegde. Furthermore, by that time, the vast majority of the costs of the urgent trial were likely to have been incurred.

67    Returning to the offer, since Mr Hegde’s lawyers were located in Brisbane and at that time of the year daylight saving operated in New South Wales, 1.00 pm Sydney time equated to 12.00 midday Brisbane time. It follows that the offer remained open for approximately three hours. Even though it offered Mr Hegde the opportunity to seek an extension of that deadline, I do not consider that period was a reasonable period in all the circumstances. Accordingly, I accept Mr Hegde’s submission in this respect that his non-acceptance of the offer was not unreasonable.

68    For these reasons, with the exception of (b) which is already mentioned above (at [58]), I do not accept Mark Casey’s contentions set out above (at [28]). Specifically, I do not accept that the proposal in [3(a)] and [3(b)] of Mark Casey’s offer are equivalent to the outcome it in fact achieved in the primary judgment. Nor do I accept that its offer was clear in its terms, or involved a genuine compromise. That is particularly so with respect to its obfuscation of the connection between issues (a)(i) and (b) on the one part, and issue (c) on the other, concerning the ratification aspect of the 12 October EGM resolutions. It is worth interpolating that this aspect also explains why most, if not all, of the five reasons advanced by Mark Casey above (at [29]) cannot be accepted.

69    Finally, while I accept that Mr Hegde was in a position to assess the merits of the offer, I do not accept that it was reasonable, in the circumstances, to allow him three hours to do so. This provides a separate and independent reason why Mr Hegde’s non-acceptance of that offer was not unreasonable.

70    To sum up, for the reasons set out above, I do not consider Mr Hegde’s failure to accept Mark Casey’s offer constitutes the special or unusual factor necessary to justify an award indemnity costs against Mr Hegde.

Should an indemnity costs order be made against Mark Casey?

71    Next, it is convenient to deal with the converse of the issue above, namely Mr Hegde’s application for indemnity costs against Mark Casey. Unlike with his similar application against Mr Dutton, Mr Hegde is unable to rely on an offer he made to Mark Casey. Instead, he has sought to rely generally upon the unreasonableness of Mark Casey’s conduct in intervening in this proceeding, in the face of an agreement having been reached between him and Mr Dutton, and its conduct since that event (see at [14] and [23] above).

72    This matter can be disposed of briefly. Given Mark Casey’s acknowledged success on two of the five issues which Mr Hegde has identified as arising from its intervention (see at [15] above), albeit on its alternative fall-back position, I do not consider any of those matters separately, or together, comprises the special or unusual feature that would justify an indemnity costs order being made against Mark Casey.

Should either Mr Hegde or Mark Casey be ordered to pay the other’s costs of this proceeding?

73    Finally, it is necessary to deal with the contentions put by both Mr Hegde and Mark Casey that costs should be apportioned and ordered on an issues basis. In making these contentions, each party has put forward a different description of the issues that fell to be determined at the trial. Moreover, both differ in various respects to the issues set out in the primary judgment (see at [4] above).

74    Mr Hegde has identified five issues (see at [14] above). He claims he succeeded on three of those issues and that Mark Casey’s success on the other two must take account of the fact that that success related to “a discretionary matter which were [sic] not raised until submission of the concise statements. Moreover, it was found that part of the claim in respect of the EGM was unsustainable”.

75    For its part, Mark Casey has isolated the issue sought in [1] of Mr Hegde’s amended originating application and claimed that each party should bear its own costs of that issue. Otherwise, it claims Mr Hegde should pay its costs of all other issues. The relief sought in Mr Hegde’s further amended originating application was as follows:

1.    A declaration that [Mr Hegde] has never resigned as a director of [Nutricare Holdings].

2.    An order that [Mr Dutton] and [Mr Travis Smithson] file with ASIC documents amending the company record to reflect [Mr Hegde] as a director of [Nutricare Holdings].

3.    A declaration that the resolution made on or about 25 August 2020 by which [Nutricare Holdings] purported to appoint the following individuals as directors of [Nutricare Holdings] is invalid and of no effect:

(a)    Mark James Casey:

(b)    Mike Tauschek:

(c)    Hammad Atassi: and

(d)    Kimberlee Anne Boribon.

4.    A declaration that the resolutions purportedly passed by [Nutricare Holdings] on 12 October 2020 is invalid and of no effect.

5.    Other than where necessary to assist in effecting any order of the Court, each of: Mr Mark Casey, Mr Mike Tauschek, Mr Hammed Attasi [sic] and Ms Kimberlee Anne Boribon undertake not to purport to perform any duties as a purported director of [Nutricare Holdings], nor to engage in any business of any relation to the activities of [Nutricare Holdings] until further order of the Court.

6.    Costs.

76    In making this claim, Mark Casey contends it was pursuing a “single outcome” and its failure on some of the issues should not affect its entitlement to the costs of its success on that outcome (see at [27] above). For the reasons that follow, I do not accept either of these sets of contentions and consider, instead, that each of Mr Hegde and Mark Casey should bear their own costs of this proceeding.

77    In New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (No 2) [2011] FCAFC 152, the Full Court acknowledged that the broad discretion in s 43 of the FCA extended to apportioning costs based on the success of a party on a discrete issue or issues in a proceeding (at [12]-[13]). However, the Court then cautioned against a “too ready … resort” to that approach (at [14]-[15]). The High Court has expressed similar sentiments relatively recently in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6]. In my view, these observations resonate in this matter.

78    First, in making the contentions above, each party has, in my view, attempted to diminish the success achieved by the other and exaggerate its own success. When the effect of that overreaching is removed and the outcome that each party achieved is assessed, I consider they are broadly equal. That is to say, and to adopt Mark Casey’s description, they have each achieved the “single outcome” they sought from the proceeding. Mr Hegde was successful in having his directorship confirmed and Mark Casey was successful in obtaining a workable Board for Nutricare Holdings.

79    However, as has been mentioned numerous times above, the issues underlying those two outcomes were closely connected. That occurred because, among other things, the continuation of Mr Hegde’s directorship affected the validity of the 24 August 2020 Circulating Resolution and that, in turn, affected Mark Casey’s attempt to ratify the appointments made by that resolution. The consequence of that connection is, in my view, that it will be practically impossible to isolate the work associated with a particular issue and allocate the associated costs of it to one or other of the outcomes achieved.

80    In any event, even if that exercise could be performed successfully, I consider the amount of costs likely to be allocated to each outcome would be approximately equal. I base this conclusion on my observation that, during the trial, in very broad terms, an equal amount of time was devoted to the issues connected with each outcome. That being so, I expect a broadly similar position would apply to the preparation work associated with those issues.

81    For these reasons, I do not consider it is appropriate to apportion the costs of this proceeding, as between Mr Hegde and Mark Casey, on an issues basis. Instead, I consider the most appropriate order in all the circumstances is that each of Mr Hegde and Mark Casey should bear its own costs of the proceeding.

CONCLUSION

82    In summary, for the reasons set out above, I have concluded:

(a)    each of Mr Hegde, Mr Dutton and Mark Casey has failed to identify a special or unusual feature that would justify indemnity costs being ordered against the other;

(b)    as between Mr Hegde and Mr Dutton, in all the circumstances, the most appropriate and fair costs order is that each party should bear his own costs;

(c)    as well, as between Mr Hegde and Mark Casey, in all the circumstances, the most appropriate and fair costs order is that each party should bear its own costs.

83    Accordingly, the only order required is that each party should bear its own costs of the proceeding.

Associate:    

Dated:    29 January 2021

SCHEDULE OF PARTIES