Federal Court of Australia
GFIN Pty Limited v Gooden, in the matter of GFIN Pty Limited (No 4) [2021] FCA 325
ORDERS
DATE OF ORDER: |
THE COURT DECLARES THAT:
A. The first defendant breached the duties he owed to the plaintiff as a director by misappropriating the plaintiff's funds to the indirect personal benefit of the first defendant in causing the plaintiff to pay, without any consideration, $443,715.73 to the second defendant.
B. The first defendant breached the duties he owed to the plaintiff as a director by misappropriating the plaintiff's funds to his personal benefit by causing the plaintiff to pay to himself an excessive salary, such excess being in the amount of $29,390.
THE COURT ORDERS THAT:
1. Judgment for the plaintiff against the first and second defendants, jointly and severally, in the amount of $568,093.30 inclusive of interest up to judgment.
2. Separately and in addition, judgment for the plaintiff against the first defendant in the amount of $35,620.75 inclusive of interest up to judgment.
3. The first and second defendants do pay 70% of the plaintiff's costs including reserved costs, such costs to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
COLVIN J:
1 GFIN Pty Limited claimed compensation for alleged breach of fiduciary duty by Mr Malcolm Gooden who, at all relevant times, was the managing director of GFIN. A significant part of the claim by GFIN was based upon allegations to the effect that Mr Gooden misappropriated amounts from GFIN for his own benefit. GFIN also claimed compensation from Beagle Pty Limited, a company controlled by Mr Gooden, on the basis that it was a knowing recipient of much of those amounts.
2 The claims by GFIN based upon alleged misappropriation were upheld: GFIN Pty Limited v Gooden, in the matter of GFIN Pty Limited (No 3) [2021] FCA 227. However, other claims of breach of fiduciary duty by Mr Gooden were not upheld. The claims that were unsuccessful were more complex than the misappropriation claims and required a consideration of detailed factual material over a number of years concerning the nature of the business operations of GFIN and the conduct of its financial affairs.
3 GFIN now seeks orders to give effect to the reasons that have been delivered concerning the claims. GFIN seeks orders to deal with four aspects, namely:
(1) Correction of one of the figures used in the reasons;
(2) Declaratory relief to reflect the extent to which the claims were upheld;
(3) Provision for interest; and
(4) Costs, including indemnity costs from the date of an offer that was not accepted by Mr Gooden and Beagle.
Correction of relevant amount
4 My reasons for decision identified the pathway for the determination of the quantum of an amount that had been paid to Beagle at the instigation of Mr Gooden without consideration (and in circumstances where the knowledge of Mr Gooden to the effect that there was no basis for the payment was to be attributed to Beagle). However, there was an obvious error in the calculation of the amount. It has since been corrected. I am satisfied that the amount that was misappropriated by Mr Gooden to the benefit of Beagle was $443,715.73. The correction having been made to the reasons there is no need for any further order.
Declaratory relief
5 The Court has a wide discretionary power to make declarations where it is satisfied that the question is real, not hypothetical or theoretical: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68 at [92]. Where, as here, the declarations sought concern conduct that has been found to breach a statutory standard there is a wider interest in identifying the conduct that has contravened the legislation. In the present case, the conduct was also found to breach obligations at general law. The proposed declarations will serve the purpose of identifying the nature of the conduct that has been found to be in breach of duty. They reflect the findings of the Court. I am satisfied that they should be made.
Interest
6 GFIN proposes that judgment be entered for amounts that include interest up to and including the date of judgment. Although judgment is to be entered for a total sum, the misappropriations as found occurred over a two year period. A detailed calculation has been provided by GFIN in which interest is calculated from the date on which the funds were appropriated to the benefit of Mr Gooden or Beagle as the case may be. Having regard to the nature of the claim and the basis upon which it was upheld, I am satisfied that the Court should exercise its discretion to require interest to be paid from the date that GFIN's funds were paid away.
7 I note that compound interest is not sought and that interest is said to have been calculated at the pre-judgment rates published by the Court (being 4% above the cash rates published by the Reserve Bank of Australia from time to time).
8 On the basis of the submission that interest has been calculated in the manner I have described above, I am satisfied that the amounts proposed should be included in the amount of the judgment.
Costs
9 GFIN seeks a cost order to the effect that Mr Gooden and Beagle pay its costs on an ordinary basis up to 11.00 am on 7 August 2020 and thereafter on an indemnity basis. The precision of the time from which indemnity costs are sought reflects the point in time that is said to have been two days after an offer was made to settle the proceedings that, in the result, would have been more favourable to Mr Gooden and Beagle than the determination after the final hearing. If the offer had been made using the form provided under the Federal Court Rules 2011 (Cth) then r 25.14(3)(a) would have given rise to an entitlement to an order for indemnity costs from that date (subject to the general discretion that the Court retains to make an order that is inconsistent with any specific rule).
10 However, the offer was made informally and provided for acceptance up until 4.00 pm on 2 September 2020. It foreshadowed a claim for costs in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 if the offer was not accepted and a judgment was obtained that was more favourable than the terms of the offer.
11 I accept that the judgment that will be entered in favour of GFIN against Mr Gooden will be much more favourable in terms of its amount than the amount proposed in the settlement offer. However, the position in relation to Beagle is not clear because the offer was not a monetary offer and concerned the transfer of Beagle's shares in GFIN to other shareholders in GFIN. Perhaps this aspect of the offer accounted for why it was not made in accordance with the formal procedure available under the Court's rules.
12 In any event, the consequence of including within the offer a settlement term that was not monetary is that it introduced a complexity into any evaluation to be made at a later time as to whether conduct in not accepting the offer was unreasonable. Further, the offer was in terms that required acceptance by both Mr Gooden and Beagle.
13 Further, in determining the appropriate award of costs, it must be noted that GFIN failed in a substantial part of its claim. As I have observed, that aspect of the claim gave rise to a large part of the legal and factual material that was required to be considered by the Court. It was a claim that had much greater legal and forensic complexity than the aspect of the claim that was based upon alleged misappropriation.
Relevant principles as to costs
14 The award of costs is discretionary: s 43 of the Federal Court of Australia Act 1976 (Cth). The discretion is unconfined, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion: Oshlack v Richmond River Council (1998) 193 CLR 72 at [65] (McHugh J, Brennan CJ agreeing) and [134] (Kirby J). Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25] and Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6]. So, a costs order usually follows the event, but need not do so. The particular circumstances may result in a reasoned conclusion as to why the broad discretion as to costs may be exercised in a manner that produces a different result. This may be expressed in the following terms as stated in IFTC Broking Services Limited v Commissioner of Taxation [2010] FCAFC 22 at [8]:
… the compensatory principle informs the usual approach to costs (costs follow the event), an approach which generally is not displaced other than in special circumstances, with such circumstances to be assessed in the context of the particular case.
15 It may be appropriate to adjust costs orders by reference to the outcome on particular issues: PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46 at [14]-[15]. Even so, rather than order costs by issues, the court may deal with costs compendiously by adopting a percentage reduction approach to avoid the complexities associated in allocating costs to particular issues: Phonographic Performance Company of Australia Limited v Copyright Tribunal of Australia (Costs) [2019] FCAFC 192 at [6]-[7].
16 Where an order is sought on the basis of the conduct of a party in refusing to accept a Calderbank type offer, the Court considers whether the conduct in refusing to accept the offer was unreasonable and imprudent at the time that the offer was rejected: Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [23]. However, it is also recognised that the ordinary provision by which indemnity costs might flow from the unreasonable refusal of an offer is to be confined to the ordinary case: IFTC Broking Services Limited v Commissioner of Taxation [2010] FCAFC 31 at [9].
Conclusion as to costs
17 In my view, when it comes to the application for indemnity costs, this is not an ordinary case for two reasons. First, no submission has been advanced as to why it was unreasonable not to accept an offer that included as a term Beagle agreeing to transfer its shareholding interest in GFIN to other shareholders (a form of relief not sought in the proceedings). Second, although GFIN has been successful as to part of its claim and has obtained a monetary award in excess of that which it proposed to Mr Gooden in the settlement, it also has been unsuccessful in a large part of the case which gave rise to a considerable part of the forensic burden of the case.
18 It is submitted for GFIN that in addition to the refusal of the settlement offer, Mr Gooden actively defended the proceedings for over two years and then, shortly prior to the final hearing, was made bankrupt on his own petition. However, it is not claimed that the bankruptcy did not truly reflect the financial circumstances of Mr Gooden at that time. Once Mr Gooden became bankrupt there was a stay of these proceedings. They were allowed to proceed because leave was sought and granted to do so: GFIN Pty Limited v Gooden, in the matter of GFIN Pty Limited (No 2) [2020] FCA 1440. The trustee in bankruptcy chose to file a submitting appearance. Those events, of themselves, do not indicate that there was inappropriate conduct by Mr Gooden in seeking to defend the proceedings up until that time, especially as to those aspects of the claim in which GFIN has not been successful.
19 I have considered whether it might be possible to approach the question of costs by making orders as to costs that deal with that aspect of the case on which GFIN was successful and making different orders as to other aspects of the case. In the result, in my view it would be difficult to unscramble the costs in that way where the affidavits and other materials dealt with the events as a whole and many costs are unlikely to be able to be neatly allocated.
20 I am not satisfied that it is appropriate to make an order for costs on an indemnity basis. In order to reflect the extent of success of GFIN in the proceedings I will order that GFIN and Beagle bear 70% of the costs of the proceedings to be assessed if not agreed.
21 Finally, I note that GFIN had indicated that it would seek an order that it be entitled to claim any costs as a provable debt in Mr Gooden's bankrupt estate. An order to that effect is not sought. The order as to costs which is now to be made will be a liability that has arisen would appear to be one that has arisen after the bankruptcy of Mr Gooden: Foots v Southern Cross Mine Management at [65]-[67] (Gleeson CJ, Gummow, Hayne and Crennan JJ); and Mutton v Living Australia Pty Ltd, in the matter of Living Australia Pty Ltd [2020] FCA 739 at [33] (White J).
Summary of orders
22 For the above reasons, I will make declarations in the terms sought, enter judgment in the amounts sought (on the basis that the amounts include interest calculated in the manner I have described) and will order that Mr Gooden and Beagle pay 70% of GFIN's costs of the proceedings.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. |
Associate:
