Federal Court of Australia

Sharif v Vitruvian Investments Pty Ltd (No 5) [2024] FCA 134

ORDERS

THE COURT ORDERS THAT:

1.    The costs of the proceedings in WAD 127 of 2022 and WAD 153 of 2022 be assessed as a single set of costs with due allowance for the extent to which any of those costs related solely to the proceedings in WAD 153 of 2022.

2.    In WAD 127 of 2022, the defendants do pay the plaintiff the amount of $969,061.34 (inclusive of GST) in respect of his costs.

3.    In WAD 153 of 2022, the plaintiff do pay the defendant the amount of $118,000 (inclusive of GST) in respect of his costs.

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

REASONS FOR JUDGMENT

COLVIN J:

1    On 30 June 2020, the 15% shareholding of Mr Walid Sharif in Vitruvian Investments Pty Ltd (Vitruvian) was cancelled by resolution of the sole director of the company, Mr Jonathan Gregory. Two weeks later Vitruvian issued further shares to its two remaining shareholders. Two months after that, the shares on issue by Vitruvian were split with 178 shares being issued for every share. In consequence, J & S Gregory Pty Ltd (a company controlled by Mr Gregory) became the holder of 18 million shares in Vitruvian and Mr Andrew Larsen became the holder of two million shares. A week later three million shares were issued to VFormTrain Pty Ltd as trustees for employees of Vitruvian for the purpose of establishing an employee share scheme. Thereafter, there were further share issues by Vitruvian in 2021 and 2022 to the existing and new shareholders.

2    Mr Sharif claimed that the conduct of the affairs of Vitruvian had been oppressive to him. He also claimed that J & S Gregory Pty Ltd and VFormTrain Pty Ltd benefitted from that conduct.

3    In July 2022, Mr Sharif commenced proceedings in this Court against Vitruvian, Mr Gregory, J & S Gregory Pty Ltd and VFormTrain Pty Ltd (together, the Vitruvian Defendants). By those proceedings Mr Sharif sought relief on the basis of alleged contravention of s 232 of the Corporations Act 2001 (Cth), alternatively breach of a shareholders agreement (Oppression Claim). He sought orders reinstating him as a 15% shareholder of Vitruvian, alternatively damages.

4    Mr Sharif also claimed to be the joint inventor, with Mr Gregory, of a fitness device for which patent applications had been made by Vitruvian and sought relief on that basis (Patent Claim). Based on that aspect of his claim he sought orders rectifying the register of patents.

5    A few months before commencement by Mr Sharif of proceedings in this Court, Vitruvian had commenced proceedings in the Supreme Court of Western Australia in which it sought relief declaring that the cancellation of the shares of Mr Sharif that had occurred almost two years earlier was not invalid. Vitruvian also sought an order pursuant to s 1322(4)(c) of the Corporations Act relieving its directors and officers from any civil liability arising out of the share cancellation (Section 1322 Application). On 26 July 2022, those proceedings were ordered to be transferred to this Court.

6    After the transfer, orders were made by this Court for Mr Sharif to be joined as a defendant to the Section 1322 Application and for the two sets of proceedings to be case managed together. Orders were also made for a joint trial of the two proceedings and for evidence in one proceeding to be evidence in the other. The trial was expedited.

7    On 20 April 2023, Mr Sharif applied to amend his statement of claim in the proceedings brought by him and also to amend his defence to the Section 1322 Application (Amendment Application). I heard and determined the Amendment Application on 4 May 2023. The application was allowed on the basis that Mr Sharif would pay the costs of the amendment applications and the costs thrown away by reason of the amendments.

8    Broadly speaking, the amendments added a claim by Mr Sharif that there was an implied term of the shareholder's agreement by which he was entitled to participate pro rata in any share issue by Vitruvian. Leave was also given to delete the Patent Claim. The amendments were allowed at a time when witness statements had been exchanged between the parties. Much of the content of those statements concerned the competing accounts of the circumstances in which the fitness device had been conceived and developed.

9    At about the same time as the Amendment Application, Mr Sharif also sought to inspect a number of documents in respect of which the Vitruvian Defendants claimed legal professional privilege (Inspection Application). He brought an application for orders for inspection. His application was refused: Vitruvian Investments Pty Ltd v Sharif [2023] FCA 471.

10    The trial of the proceedings took place between 29 May and 1 June 2023. Reasons were delivered in August 2023: Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920 (Trial Reasons). In the conclusion to those reasons, I said (at [330]):

For the above reasons, the application by Vitruvian for orders pursuant to s 1322 of the Corporations Act must be dismissed with costs. The application by Mr Sharif for orders as provided for in s 233 on the basis of oppressive conduct contrary to s 232 should be allowed. The appropriate order to be made is to require J & S Gregory Pty Ltd to transfer three million shares in Vitruvian to Mr Sharif before the issue of any further shares by Vitruvian. The transfer should occur without consideration payable by Mr Sharif. There should be an order for costs in favour of Mr Sharif but that order will need to allow for the extent to which claims were not pursued. It should have regard to materials that the parties have been directed to file as to the question of costs.

11    Three million shares equated to 8% of the ordinary shares in Vitruvian.

12    The reference in the above conclusion to materials that the parties had been directed to file as to costs was a reference to materials filed pursuant to orders made on 9 June 2023 requiring the parties to file and serve:

(1)    a statement of the legal costs and disbursements that had been incurred in the conduct of the proceedings (including costs incurred while the proceedings were being conducted in the Supreme Court of Western Australia), together with a breakdown of those costs that will assist in assessing their reasonableness; and

(2)    submissions of no more than five pages setting out the quantum of costs that the party would seek on a lump sum basis in the event that the proceedings were determined favourably to that party and costs were assessed on a lump sum basis, together with any submissions as to whether costs should be assessed on a lump sum basis by reference to the statement of legal costs and disbursements provided in accordance with the orders.

13    The cost summary filed by Mr Sharif pursuant to those orders listed all of the costs and disbursements that had been incurred by Mr Sharif. It contended that an amount of $1,419,382.74 (inclusive of GST) would be an appropriate figure for a lump sum costs order in favour of Mr Sharif if he was successful. That figure was approximately 87% of the costs said to have been incurred. The costs incurred included an amount of $771,879.90 (inclusive of GST) that had been charged by Squire Patton Boggs who had acted for Mr Sharif in the proceedings up until the end of January 2023. Thereafter, Hall & Wilcox acted for Mr Sharif. The significance of the amount included for charges by Squire Patton Boggs is addressed below.

14    The cost summary filed by the Vitruvian Defendants identified the costs charged to Vitruvian in respect of the Section 1322 Application when it was being conducted in the Supreme Court as being $106,223 (inclusive of GST). It stated that when the Section 1322 Application had been transferred to this Court, Bennett, the lawyers acting for the Vitruvian Defendants, thereafter had recorded all of the time charges on a single file which related to both proceedings in this Court. The total costs incurred for the period after the transfer were said to have been $1,019,011.64 (inclusive of GST). The combined figure was $1,125,234.64. It was submitted for the Vitruvian Defendants that if it was appropriate that costs be awarded on a standard party and party basis, the appropriate order was for Mr Sharif to pay the Vitruvian Defendants a lump sum of $726,818.85 (excluding GST), being an amount of $799,500.73 (inclusive of GST).

15    In the short submissions filed with the cost summaries, all parties supported the making of a lump sum costs order.

16    Usually, the costs incurred by a claimant who bears the onus might be expected to exceed the costs of a responding party. However, even if Mr Sharif is viewed, in substance, as the claimant, the disparity between the two costs amount is considerable.

17    After the judgment was delivered, two issues arose. First, there was a dispute as to the terms in which orders should be made to give effect to the transfer of shares by J & S Gregory Pty Ltd to Mr Sharif. Second, there was a dispute as to the quantum of the lump sum order (which dispute encompassed a claim by Mr Sharif that the lump sum assessment should be undertaken on an indemnity basis).

18    I determined the dispute as to the orders: Sharif v Vitruvian Investments Pty Ltd (No 4) [2023] FCA 1172. There remains the issue of the lump sum costs assessment. These reasons concern that issue.

19    There is no dispute that Mr Sharif was substantially successful and that there should be a lump sum costs order in his favour. Various matters are said to bear upon how that lump sum assessment should be undertaken. They include some offsetting claims to costs by the Vitruvian Defendants.

20    There is also an issue as to whether there should be a single lump sum assessment as to all of the costs which should be ordered to be paid by all of the Vitruvian Defendants or whether there should be some separate identification of the costs of the Section 1322 Application with those costs to be ordered to be paid by Vitruvian only.

21    The issues that arise are as follows:

(1)    Should the lump sum assessment be made on an indemnity basis?

(2)    If costs are to be assessed on an indemnity basis should there be any adjustment on the basis that costs were unreasonably incurred or were unreasonable in amount?

(3)    What should occur in relation to the costs incurred in resolving the dispute as to the terms in which the relief as to the transfer of shares by J & S Gregory Pty Ltd to Mr Sharif should be expressed?

(4)    Having regard to events that have occurred in relation to the costs charged by Squire Patton Boggs to Mr Sharif since the cost summaries were provided, what is the proper approach to those costs in undertaking the lump sum assessment?

(5)    Should an adjustment be made on the basis that some of the costs that are sought to be recovered concern work undertaken by fee earners whose names do not appear on the Register of Practitioners kept by the High Court of Australia?

(6)    What provision should be made for the costs of the Amendment Application?

(7)    What provision should be made for the costs thrown away by reason of the withdrawal of the Patent Claim by Mr Sharif?

(8)    What provision should be made for the costs of the Inspection Application?

(9)    Should an adjustment be made as to the costs that may be recovered by Mr Sharif on the basis that there was inadequate disclosure by Hall & Wilcox of the costs that were likely to be incurred by Mr Sharif in the conduct of the proceedings?

(10)    Should the lump sum order in favour of Mr Sharif be made against all the Vitruvian Defendants?

(11)    Having regard to the resolution of the above issues, in what amount should the lump sum assessment be made?

(12)    What provision should be made in the lump sum assessment for the costs of and incidental to the determination of the appropriate amount for the lump sum costs order?

Issue (1): Should the lump sum assessment be made on an indemnity basis?

22    Counsel for Mr Sharif advanced three reasons for the making of an indemnity costs order, namely:

(1)    A contention that, on the findings made, Mr Gregory had acted in a manner that was (a) unreasonable, flagrant and planned; (b) undertaken without taking advice as to the merits; and (c) undertaken in the expectation that Mr Sharif did not have the wherewithal to do anything about the cancellation of his shares. It was also said to involve Mr Gregory taking the law into his own hands.

(2)    A contention that it had been found that Mr Gregory had undertaken a deliberate strategy to rewrite history as to the events that had occurred as part of a plan to remove Mr Sharif from the register of Vitruvian.

(3)    A contention that there had been an unreasonable failure by the Vitruvian Defendants to accept the terms of a settlement offer made by Mr Sharif (such that costs thereafter should be awarded on an indemnity basis).

23    Contentions (1) and (2) seek to invoke those authorities concerned with instances where the conduct of a party may justify an award of costs on an indemnity basis. Contention (3) seeks to invoke a different principle concerned with the circumstances in which the refusal of a reasonable offer to settle the proceedings might justify an award of costs on an indemnity basis as to those costs incurred after the offer was rejected.

Relevant principles as to indemnity costs

24    The principles to be applied are well known. They were summarised by Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246 at [6]-[12], in terms with which I respectfully agree. In that instance, his Honour was concerned with a contention that indemnity costs should be awarded by reason of obvious deficiency in the merits of the case of the losing party. However, indemnity costs may be awarded in any instance where the Court is persuaded that there is some 'special or unusual feature' that justifies an order for indemnity costs: Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5] (Jagot, Yates v Murphy JJ).

25    Conduct sufficient to justify an indemnity costs order may take many different forms. All depends upon the circumstances of the case. Though not designed to punish, indemnity cost orders do mark the Court's disapproval of the way that proceedings have been conducted, including instances where they are shown to have been conducted for an improper collateral purpose. They are one of the means by which the Court supervises the fairness and integrity of its processes.

26    The relevant feature that justifies an indemnity costs order may be the resort to court proceedings to advance an obviously weak claim or to advance an unmeritorious defence, including instances where false evidence has been given or there has been a breach of disclosure obligations. It may be found in the oppressive or unreasonable manner in which the procedures of the Court have been used to conduct a case. It may also be found where a litigant has conducted proceedings or the defence of proceedings for an ulterior or collateral purpose.

27    Usually, the delinquency that is found to justify an indemnity costs order will concern the conduct of the proceedings, not the conduct which is the subject of those proceedings: Harrison v Schipp [2001] NSWCA 13 at [136] (Giles JA, Handley JA agreeing); and Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133 at [9] (Sheller, Ipp and Tobias JJA). This is to ensure that the indemnity costs order is not applied as some form of further remedy or relief or punishment for the conduct that is in issue in the proceedings. So, even where a claim of fraud is proven, that event will not support an award of indemnity costs: NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480; (2001) 109 FCR 77 at [56] (Lindgren J).

28    As to whether the giving of false testimony may be the basis for an award of indemnity costs, Jackson J dealt with the authorities in Frigger v Trenfield (No 11) [2022] FCA 326 at [56]-[60]. There is no rule or usual approach. All depends on the circumstances.

29    Unjustifiable commencement of proceedings may be a relevant feature. Further, it has been held that unreasonable conduct which has forced a party, to resort to legal proceedings in circumstances where, in effect, the defendant is the moving party may justify an indemnity costs order - such as where the defendant, acting unreasonably and reprehensibly, has invoked a legal procedure by issuing a notice that requires a person to produce documents on pain of commission of a criminal offence thereby forcing the party to comply or commence proceedings to set aside the notice: Porter v Australian Prudential Regulations Authority [2009] FCA 1148 at [7]-[12] (Perram J).

30    Where an order is sought on the basis of the conduct of a party in refusing to accept an offer to settle the proceedings, 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]-[25] (Warren CJ, Maxwell P and Harper AJA); and Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6]-[7] (Nicholas, Yates and Beach JJ). Even so, there may well be reasons why the refusal of an offer of settlement, the acceptance of which would have brought the proceedings to an end on terms that were more favourable to the party than any judgment that has been obtained, still does not justify an indemnity costs order. In that regard, if a party says that the rejection of a favourable offer was not unreasonable, it is for that party to point to a reason for refusing the offer beyond the usual prospects of being successful in the litigation: Stewart v Atco Controls Pty Ltd (in Liquidation) [No 2] [2014] HCA 31; (2014) 252 CLR 331 at [4] (Crennan, Kiefel, Bell, Gageler and Keane JJ.

31    For completeness, I note that, in the present case, the offer relied upon by Mr Sharif did not comply with the requirements of the Federal Court Rules 2011 (Cth) and therefore the analysis described in IFTC Broking Services Limited v Commissioner of Taxation [2010] FCAFC 31 at [9] (Stone, Edmonds and Jagot JJ) is not required.

Contention (1): The conduct of Mr Gregory

32    In some respects, the submissions for Mr Sharif in advancing the first contention as the basis for an indemnity cost order advanced matters that were relied upon to support the relief that was obtained and to oppose the Section 1322 Application. That is to say, they sought to invoke aspects of the conduct that was in issue in the proceedings. In particular, the submissions characterising the conduct as flagrant and planned fall into that category. As do those which referred to the lack of a true commercial justification for the conduct in issue. And also those which relied upon the finding that the conduct of Mr Gregory was a 'blatant and continuing' contravention of the Corporations Act to the personal advantage of Mr Gregory which demonstrated dishonesty 'in the sense that there was no genuine attempt to understand and comply with the requirements of the legislation concerned with the circumstances in which there may be a selective cancellation of shares'. In my view, having regard to the principles to be applied, those matters did not establish unreasonableness in the required sense.

33    However, it was also submitted that Mr Gregory had been found to have taken the law into his own hands and to have banked upon Mr Sharif not having the financial ability to do anything about the share cancellation. In that regard, reliance was placed upon the finding in the Trial Reasons which characterised the conduct of Mr Gregory as resorting to 'unlawful self-help': at [258].

34    The following finding in the Trial Reasons (at [241]) was also relied upon:

Mr Gregory contemplated the possibility of a challenge to the cancellation at the time that he took advice from Bennett + Co and chose to proceed, at least in part, upon an assessment that Mr Sharif lacked the financial capacity to be able to bring court proceedings challenging the cancellation of his shareholding.

35    As to that advice, the following findings had been made (at [162]):

The letter of advice concluded with advice about potential claims that Mr Sharif may have against Vitruvian if it took the action that was being recommended. It dealt explicitly with the practical difficulties that Mr Sharif would face in taking action. In particular, it addressed the likely cost to Mr Sharif of bringing court proceedings. It expressed the view that it would be difficult for a claim for breach of contract by Mr Sharif to be worthwhile because the Court would have difficulty quantifying damages as Vitruvian was a start‑up. It concluded with the following:

The ability for Mr Sharif to progress these claims depends on his financial situation. You have told us that you think Mr Sharif's only significant asset is his family home. Based on this information, Mr Sharif's potential actions may not progress very far.

The advice did not address the merits of the claims that Mr Sharif may be able to bring if his shares were cancelled.

36    The advice given to the effect that the shares could be cancelled by resolution of Mr Gregory as the sole director of Vitruvian was not correct. Soon after the cancellation of the shares it was pointed out to the lawyers for Vitruvian (and thereby to Mr Gregory) that the cancellation was undertaken without complying with the requirements of the Corporations Act. In that regard, the following finding was made (at [239]):

In the present case there was complete disregard of the statutory requirements. Although Mr Gregory acting on behalf of Vitruvian took advice from Bennett + Co which was to the effect that he could cancel the shares, the error in the advice was pointed out soon after the cancellation by lawyers acting for Mr Sharif yet nothing was done by Vitruvian thereafter. Mr Gregory offered no convincing explanation as to why nothing was done after the failure to comply with the requirements of the Corporations Act was exposed. He did not point to any further legal advice that was obtained. The application for relief under s 1322 was not brought promptly and there was no explanation for the delay. Mr Gregory, and by him Vitruvian, knew of the issue in July 2020. Vitruvian proceeded thereafter to make significant share issues in September 2020, March 2021 and April 2022 before bringing the application for orders under s 1322 on 27 April 2022 almost two years after the problem with the cancellation of the shares was exposed.

37    In my view, these are matters which bear upon the question of reasonableness for the purposes of determining whether to make an indemnity costs order. They indicate that a calculated decision was made that was influenced by a view that Mr Sharif would be unable to protect his interests because of insufficient financial resources to be able to raise his claims in the courts in circumstances where Vitruvian (and its director Mr Gregory) displayed a lack of concern as to whether its action in cancelling the shares conformed to the requirements of the law. Conduct of that kind threatens the integrity of the administration of justice. It manifests a disregard for legal obligations on the basis of an assessment that conduct may be undertaken with impunity by reason of the inability of the other party to seek protection from the courts.

38    Further, the cancellation of the shares was a resort to self-help. Although a claim was made that there had been a total failure of consideration for the share issue, that claim was hopeless and was not pressed by senior counsel who appeared at the trial for the Vitruvian Defendants. On any view, Mr Sharif undertook a considerable amount of work for Vitruvian over nearly a year. It was not a case where there was any proper basis to claim that there had been a total failure of consideration. In consequence, the claims raised by the Vitruvian Defendants depended upon the Court being persuaded that there was a proper basis for statutory relief in the nature of rescission being granted to validate, well after the event, the cancellation of the shares that had occurred without any legal authority.

Contention (2): The findings made concerning Mr Gregory's evidence

39    The main thrust of the submissions advanced for Mr Sharif to support the second contention was that the findings made in the Trial Reasons concerning the account given by Mr Gregory were to the following effect: having accepted that Mr Sharif was entitled to a shareholding in Vitruvian as a person who had the status of a founder of the company and having then failed in his efforts to reach a settlement with Mr Sharif as to the terms on which he would relinquish his shareholding, Mr Gregory then embarked on a deliberate and calculated plan that involved rewriting what had actually occurred.

40    Put in those terms, the contention went beyond a reliance upon the adverse findings as to the credibility of the account given by Mr Gregory at the trial (which, of themselves would be insufficient to demonstrate the requisite unreasonableness). Rather, the submissions were to the effect that Mr Gregory had formulated a plan which included giving a revisionist version of events in order to be able to justify the cancellation of the shares held by Mr Sharif.

41    One of the matters relied upon by Mr Gregory concerned what he understood to be the position in relation to Mr Sharif's qualifications based upon statements said to have been made by Mr Sharif. In that regard, the following finding was made in the Trial Reasons at [215]:

I conclude that the claim to the effect that Mr Gregory placed significance upon the statement made by Mr Sharif that he held a bachelor's degree in electrical engineering is a revisionist version of the events that was constructed after the settlement negotiations with Mr Sharif failed and at a point in time when Mr Gregory was looking for some basis to remove Mr Sharif from the share register of Vitruvian. It was not until 8 June 2020 after the settlement offer to Mr Sharif was rejected that Mr Gregory focussed upon the issue of Mr Sharif's degree.

42    The following further finding was made at [216]:

I find that Mr Gregory gave no particular significance to the statement made by Mr Sharif about his degree at any time until after the negotiations with Mr Sharif in June 2020 failed to result in any agreement. By that time, Mr Gregory was searching for a reason to justify the cancellation of Mr Sharif's shares because he viewed him as a 'pain on the register'.

43    The Trial Reasons also pointed out the stark contrast between what was said in the communications in which there were attempts to reach a settlement and the contents of letters sent subsequently to justify the cancellation of the shares held by Mr Sharif. For example, the following findings were made concerning the contents of a letter sent by Bennett + Co to Mr Sharif as justification for the share cancellation at [165]:

The letter made no reference to the appointment of Mr Sharif as CEO and co-founder. Nor did it refer to the proposed appointment of Mr Sharif as a director of Vitruvian that had been indicated by Mr Gregory to Mr Sharif in March 2020 when the shares were issued to Mr Sharif and the terms of a shareholders' agreement (confirming Mr Sharif's appointment as CEO) were presented to Mr Sharif by Mr Gregory for signature. Instead, it characterised the agreement as an agreement to provide consulting services to Vitruvian . This characterisation was plainly inconsistent with the explicit history of dealings between the parties. The terms of the letter and the fact that it was approved by Mr Gregory as an appropriate description of past events reflect adversely on his credit. It is a transparent attempt to recast the nature of the agreement that had been made and the circumstances in which the 15% shareholding had been issued to Mr Sharif. These matters are addressed further below.

44    Other aspects of Mr Gregory's evidence were found to be '[an] attempt, after the event, to recast what happened to suit his own interests': at [211].

45    These matters must be considered together with the findings about a failure to take advice as to the merits of any case that might be put by Mr Sharif, a lack of concern to take advice once it was pointed out that the share cancellation did not comply with the Corporations Act and the specific advice that was taken about the costs to Mr Sharif if he wanted to resort to the Courts.

46    Taken together, I am satisfied that they justify an indemnity costs order against the Vitruvian Defendants. The present case is akin to an instance where a party proceeds in disregard of the known facts. On the findings made, Mr Gregory's version of events involved him giving significance to matters which were identified by him after the event. They involved him trying to dissociate himself from the position he had adopted consistently in communications up until the falling out with Mr Sharif, including as to the quality of Mr Sharif's work, the acceptance of an obligation to issue shares to him and the performance of that obligation, the preparation of a shareholders' agreement, the description of Mr Sharif as a co-founder and the identification that the 'next step' would be the appointment of Mr Sharif to the board of Vitruvian: see, in this regard, findings at [134], [140], [150], [165], [194]-[195], [200]-[202], [205], [207]-[214]. This course was undertaken after Vitruvian (and Mr Gregory) sought and obtained advice as to what it would cost Mr Sharif to take legal action and did not take advice as to the merits of Mr Sharif's position. Further, the legal advice that was obtained depended upon the instructions provided by Mr Gregory as to matters that he identified after the event that were contrary to facts that, on the findings that have been made, were known to him at the time.

47    A submission was advanced for the Vitruvian Defendants to the effect that the conduct of Mr Sharif should be taken into account in determining whether there was relevant unreasonableness. It was submitted that his conduct in pursuing the Patent Claim 'arguably' constituted commencing and continuing proceedings with a wilful disregard of the known facts. The only matter relied upon to support the submission was the fact that Mr Sharif withdrew the claim before the trial. There are many reasons why a party may withdraw a claim. There is no basis to conclude that Mr Sharif's conduct in including the claim and then not pressing it at final hearing was unreasonable in any relevant sense.

48    It was also said that Mr Sharif did not adequately particularise the alleged oppression until his opening submissions. However, the claim was always focussed upon the cancellation of shares and a plan to dilute the interest of Mr Sharif. It was a claim which succeeded. There is no merit in the submission.

49    Finally, it was said that Mr Sharif's late amendment to include a claim that he had lost an opportunity to subscribe for shares (which claim did not succeed) was unreasonable as was the failure to call Mr Sharif's wife to support that claim. This is to do no more than point to aspects of the conduct of the case which resulted in part of Mr Sharif's claim not succeeding. It is not a reason why the Court would decline to make an indemnity costs order.

Contention (3): The offer of settlement

50    Had I not reached the above conclusion based upon the matters the subject of Contentions (1) and (2) then, for the following reasons, I would not have been persuaded to accept the claim that there should be an order for indemnity costs on the basis of the rejection of the settlement offer made by letter dated 28 April 2023.

51    The settlement proposed would have resulted in Mr Sharif securing a 9% shareholding in Vitruvian, materially more shares than the 8% shareholding that was required to be transferred by the final orders. Although the settlement also provided for the sum of $150,000 to be paid by Mr Sharif and for each party to bear their own costs, the fact remains that the shareholding would have been materially more than the outcome in the case.

52    Further, the offer was made with very little time for response (four business days), in the context of a case that was proceeding with expedition.

53    Against these matters, I accept that the offer was made at a time when witness statements had been filed and in circumstances where reasons were provided as to why the claim of oppressive conduct would be upheld and the claim of some basis for rescission would fail because of a lack of reliance, being aspects of the case for Mr Sharif that were ultimately successful. Further, the conclusions that have been reached as to Mr Gregory's knowledge as to the extent to which the matters relied upon by the Vitruvian Defendants were a reconstruction after the event bear upon whether it was reasonable for the offer to be rejected.

54    In the result, I am not satisfied that it has been demonstrated that the offer was better than the terms upon which Mr Sharif ultimately succeeded or that the time for response afforded the Vitruvian Defendants an adequate opportunity to consider its terms such that it may be concluded that the rejection of the offer was a basis for ordering that costs be paid on an indemnity basis after the rejection of the offer.

Issue (2): If costs are to be assessed on an indemnity basis should there be any adjustment on the basis that costs were unreasonably incurred or were unreasonable in amount?

55    If an order is made for costs to be assessed on an indemnity basis, it remains the case that the assessment is undertaken with the usual proviso that the order does not authorise the recovery of costs that are unreasonable in amount or which have been unreasonably incurred: Coshott v Burke (No 2) [2018] FCAFC 81 at [21], [46]-[55]; and Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) at [17]. That is to say, the Court retains supervision of the amount of costs that may be recovered under an indemnity costs order. In consequence, an assessment of the costs that may be recovered under an indemnity costs order will usually result in something less than a full indemnity for all the legal costs incurred by the party.

56    Accordingly, I am persuaded that in undertaking a lump sum assessment on an indemnity basis it may be appropriate to make some adjustment on the basis that not all costs may have been reasonably incurred or that some costs that were reasonably incurred were unreasonable in amount. I gave effect to such an approach in assessing costs on a lump sum basis in LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited (No 2) [2021] FCA 1419.

57    In the present case, as is explained below, agreement has been reached with Mr Sharif's first solicitors, Squire Patton Boggs, to reduce their fees to about 60% of the amount rendered. This is a substantial reduction representing an amount of $312,257.14. It is a matter to be born in mind in considering whether there should be any further reduction for unreasonableness. A factor counting in favour of a further reduction is the extent of the discrepancy between the costs incurred by Mr Sharif compared to those incurred by the Vitruvian Defendants. These are matters that I address in the context of Issue (11) which is concerned with the amount of the lump sum costs order that is appropriate.

Issue (3): What should occur in relation to the costs incurred in resolving the dispute as to the terms in which the relief as to the transfer of shares by J & S Gregory Pty Ltd to Mr Sharif should be expressed?

58    After the Trial Reasons were delivered, issues arose as to the appropriate terms in which orders for the transfer of shares to give effect to those reasons might be expressed. Two issues were raised by Mr Sharif as to the terms in which the orders should be expressed. After receiving further affidavits and submissions, Mr Sharif's contentions as to those two issues were not accepted: Sharif v Vitruvian Investments Pty Ltd (No 4) [2023] FCA 1172.

59    The question for present purposes is whether the determination of the lump sum costs order should be made on the basis that the hearing as to the terms of relief was a separate event or issue on which the Vitruvian Defendants have succeeded. In my assessment the two issues that arose as to the terms of the orders for transfer were sufficiently discrete that it is appropriate to make allowance for those costs on the basis that the Vitruvian Defendants are entitled to the costs of and incidental to the two issues that were determined by the separate reasons.

60    As to those costs, having regard to the costs agreed to be allowed for other interlocutory applications, I will allow a setoff against the lump sum assessment of the costs to be allowed to Mr Sharif of $17,500 (inclusive of GST). I will also make an adjustment to the lump sum costs that may be recovered by Mr Sharif to reflect my view that he should not be entitled to recover his own costs associated with the dispute as to the terms of relief.

Issue (4): Having regard to events that have occurred in relation to the costs charged by Squire Patton Boggs to Mr Sharif since the cost summaries were provided, what is the proper approach to those costs in undertaking the lump sum assessment?

61    On 7 February 2024 agreement was reached between Mr Sharif and Squire Paton Boggs that of the amount of fees rendered to Mr Sharif that was then outstanding (being an amount of $412,257.14), Squire Patton Boggs would accept the amount of $100,000 in full and final settlement of those fees.

62    Before the agreement was reached with Squire Patton Boggs to reduce the amount of fees to be charged to Mr Sharif, the Vitruvian Defendants had raised an issue as to whether there had been adequate disclosure by Squire Patton Boggs of the likely costs to be incurred in attending to Mr Sharif's instructions as to the conduct of the proceedings. It was submitted that the Court should reduce the amount of fees that could be recovered from the Vitruvian Defendants under any lump sum order.

63    Two separate matters were raised. First, it was said that disclosure had not been provided 'as soon as practicable' because the disclosure was not provided until 7 December 2021. Second, there was said to have been a failure to disclose whether a costs determination applies to any of the costs.

64    For the Vitruvian Defendants, a bald generalised submission was advanced that 'an appropriate further reduction [for the alleged serious failures] would be in the range of 10% to 15%'. A reduction of that order in respect of the lump sum costs claimed would be less than the amount of the reduction subsequently agreed with Squire Patton Boggs. Therefore, the point falls away.

Issue (5): Should an adjustment be made on the basis that some of the costs that are sought to be recovered concern work undertaken by fee earners whose names do not appear on the Register of Practitioners kept by the High Court of Australia?

65    Some of the legal practitioners who undertook work for Mr Sharif were not on the Register of Practitioners kept by the High Court of Australia at the time of undertaking the work. It is submitted by the Vitruvian Defendants that, in consequence, costs for work done by those legal practitioners can only be claimed at the rate applicable for work done by graduates or clerks. They rely upon the reasoning of O'Callaghan J in Jadwan Pty Ltd v Rae & Partners (A Firm) (No 7) [2022] FCA 1174 at [27]-[37] where his Honour concluded that: 'The fees "which are" the subject of a taxation certificate from a taxing officer must be payable to a practitioner whose name appears on the Register of Practitioners kept by the High Court of Australia pursuant to s 55C of the Judiciary Act'.

66    If an adjustment was to be made on that basis to the overall charges by Hall & Wilcox then they would be reduced by an amount of about $70,000 (a figure which assumes that all of the work done by those practitioners who were not on the Register is recoverable under a lump sum order).

67    The reasoning of O'Callaghan J rested upon obiter statements by Dowsett J in Oil Basins Limited v Watson [2017] FCAFC 103; (2017) 252 FCR 420 at [61]-[65] where his Honour reasoned that the entitlement to practise in this Court required a person to both be admitted to practise in the Supreme Court of a State or Territory and to have their name on the High Court's Register of Practitioners. Further, where there is no entitlement to practise, a practitioner will generally be unable to recover fees as a practitioner. It is a view that was also expressed by Logan J in Kumar v Secretary, Department of Social Services [2019] FCA 735 at [10], see also Hii v Commissioner of Taxation [2019] FCA 1589 at [10].

68    In those authorities, reliance was placed upon the reasoning in Guss v Veenhuizen (Taxation of Costs) (No 2) (1976) 136 CLR 47. In that case, the High Court was concerned with a claim to costs by a legal practitioner (Mr Guss) who acted on his own behalf in court proceedings and briefed counsel in the proceedings. He claimed costs according to then applicable authority which permitted a solicitor who acted in person to recover costs. Mr Guss was not on the Register of Practitioners. By majority, the High Court held that because he was seeking to recover costs as a litigant in person (and not as a solicitor) the statutory bar upon recovery that arose by operation of the Judiciary Act 1903 (Cth) did not apply: at 51-52 (Gibbs ACJ, Jacobs and Aickin JJ). Of significance for the conclusion that Mr Guss could recover was the fact that his 'lack of precise qualification was the result of an error of an officer of the Court' (who failed to record his name on the Register). As to that aspect, their Honours said that if the failure to register had been due to the fault of Mr Guss then he would have been in 'the same position as an ordinary layman' and could not recover. Therefore, the reasoning was premised upon the existence of a bar to such recovery where a solicitor was not on the Register.

69    The minority would not have allowed the claim by Mr Guss. Their Honours reasoned that the language of the Judiciary Act was 'clear and unambiguous' and applied to defeat the claim to costs: at 59 (Mason and Murphy JJ). As their Honours emphasised, the requirement for the name of a practitioner to be entered upon the register is of considerable significance. It provides a mechanism by which the conduct of legal practitioners who undertake legal work in federal courts may be supervised by facilitating the power conferred by s 55C of the Judiciary Act for an order to be made by the High Court that a person's name be struck off from the Register or that a person's entitlement to practise in federal courts be suspended for a specified period: see s 55C(5); and Guss at 59.

70    The High Court has since determined that the exception in favour of lawyers to the general rule that a self-represented litigant may not obtain any recompense for the value of time spent in the conduct of litigation is not part of the common law of Australia: Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; (2019) 269 CLR 333 (as to employed lawyers, see Atanaskovic v Birketu Pty Ltd [2023] NSWCA 312). However, those developments in the common law do not affect the view taken as to the consequences of a practitioner not being on the Register of Practitioners when it comes to recovery of legal costs.

71    The decision of Barker J in University of Western Australia v Gray (No 25) [2009] FCA 1227; (2009) 180 FCR 483 was also relied upon by O'Callaghan J. In the case, Barker J accepted that there were authorities to the effect that 'the successful party to the proceeding was entitled to be indemnified, as part of its party/party costs, in respect of the charges actually paid to an uncertificated practitioner, and no more': at [42]. However, his Honour went on to consider the significance of the requirement in the Judiciary Act for the name of a practitioner to be on the Register of Practitioners for any claim to costs.

72    As to the reasoning in Guss, his Honour concluded: 'The whole of the Court seems … to have recognised or assumed that s 55B of the Judiciary Act did in fact create a statutory bar to the allowance of professional costs in an ordinary case, if a person who is admitted in a State has not had their name entered on the Register of Practitioners kept by the High Court'.

73    His Honour went on to consider the references by Mason and Murphy JJ to the terms of the High Court Rules 2004 (Cth) concerned with the fees which may be recovered under a bill of costs. Those Rules referred to fees payable to barristers and solicitors 'entitled or admitted to practise in the Court in respect of business transaction by them in the Court'. Their Honours had reasoned that the relevant rule was referring not only to the entitlement to practise but also the right to practise conferred by s 55B of the Judiciary Act. They did so in the following context (at 59-60):

What we have said disposes of the fundamental question which has arisen, although some passing reference should be made to O. 71, r. 19, as some reliance was placed upon its provisions. It was suggested that the rule might enable the Court to make an order making specific provision for the payment of costs of the kind claimed to the appellant. However, the rule does no more than provide for the taxation by the proper officer of bills of costs unless the court otherwise provides, as, for example, by assessing the costs and ordering the payment of the sums so assessed. The expression appearing in the rule, 'barristers and solicitors entitled or admitted to practise in the Court', looks not only to the entitlement of a person to practise which is conferred by s. 55B but also to the right to practise which arises when a person is admitted by the court itself to practise in accordance with s. 55A of the Judiciary Act.

74    On the basis of the above reasoning by the minority judges, Barker J reasoned that 'the Court generally recognised that the entitlement of a party to recover costs under this rule remained dependent upon the terms of the Act governing the power of a court to order costs and any particular rules governing the assessment of costs': at [60].

75    His Honour then reasoned that the answer to the question whether the costs claimed for a 'solicitor' referred to in the scale of costs in the Rules of this Court must be one who is entitled to practise in a federal court 'is to be derived from an understanding of the operation and effect of the Rules generally': at [74]-[75]. After considering the terms of the relevant provisions in the scale of costs, Barker J found that (at [78]):

… the taxing officer can only allow and certify costs and fees which are in fact payable to legal practitioners of the defined type, that is, whose names appear in the Register of Practitioners kept by the High Court under the Judiciary Act. In determining whether or not such costs are 'payable', it does not matter whether the successful party has already paid the costs or not. The question is whether the costs charged have been paid in fact or remain to be paid to a certificated solicitor.

On that basis, his Honour reasoned that the authorities that differentiated between a case where costs had not yet been paid by a party and cases where recovery was sought of costs that had been paid to an uncertificated legal practitioner were not applicable because recovery was not permitted by the terms of the scale of costs.

76    For Mr Sharif, it was submitted that the reasoning of Barker J in University of Western Australia v Gray might be deployed to support a claim that under the current provisions of the Federal Court Rules (said to have been 'completely overhauled' since the decision of Barker J), the term 'lawyer' is now used to describe those in respect of whom costs may be recovered under the relevant Schedule of the Rules. The term 'lawyer' is now defined in the Federal Court Rules to have the meaning given by s 4 of the Federal Court of Australia Act 1976 (Cth). It defines 'lawyer' to mean 'a person enrolled as a legal practitioner of a federal court or Supreme Court of a State or Territory'.

77    Before O'Callaghan J, a general submission to the same effect as that advanced by Mr Sharif was put on the basis that matters had 'moved on' since the decision of Barker J. It was not accepted: at [25]-[26], [32]. Respectfully, that conclusion must be correct given the reasoning in Guss. In that case, all members of the Court approached the issue on the basis that the provisions of the Judiciary Act as to the Register of Practitioners were a bar to the recovery pursuant to an order for costs of those costs that were incurred in respect of work done by a practitioner who was not on the Register.

78    The decision in Jadwan went on appeal: Jadwan Pty Ltd v Rae & Partners (A Firm) [2023] FCAFC 182. The submission that matters had 'moved on' was not resurrected on appeal.

79    In those circumstances, I do not accept the submission advanced for Mr Sharif that the reasoning of O'Callaghan J was plainly wrong. It is a decision made in the context of the Federal Court Rules as they now stand and should be applied.

80    Therefore, the lump sum award of costs must make an appropriate adjustment to reflect the extent to which the actual costs relied upon to support the lump sum include about $70,000 in work undertaken by practitioners who were not on the Register of Practitioners at the time that they undertook the work.

Issue (6): What provision should be made for the costs of the Amendment Application?

81    Mr Sharif accepts that the Vitruvian Defendants are entitled to a lump sum order that he pay their costs of the Amendment Application. He has made an adjustment to the lump sum costs order that he claims to exclude his own costs associated with that application.

82    It is common ground that the costs order in favour of the Vitruvian Defendants in that regard should be for a lump sum amount of $25,438.66 (inclusive of GST).

Issue (7): What provision should be made for the costs thrown away by reason of the withdrawal of the Patent Claim by Mr Sharif?

83    For Mr Sharif it was submitted that the only costs that were thrown away by reason of the withdrawal of the Patent Claim were any costs incurred in considering legal issues. I take this to include the costs associated with pleading a defence to the Patent Claim. That was said to be because the witness statements that were prepared dealing with the competing accounts of what had occurred in relation to the development of the fitness device were tendered into evidence and relied upon by the Vitruvian Defendants to support other aspects of their case.

84    Mr Sharif proposes an overall adjustment for his costs of the Patent Claim by a reduction of 3% of the overall amount allowed. He proposes the same approach for the costs to be allowed in favour of the Vitruvian Defendants. He says that by reference to the costs that would have been claimed on a party and party basis by the Vitruvian Defendants if they had been successful, that amount is 3% of $726,818.85 plus GST, being an amount of $23,985.02.

85    The Vitruvian Defendants propose a much larger reduction to Mr Sharif's costs to allow for the abandonment of the Patent Claim.

86    Relevantly for present purposes, the Vitruvian Defendants relied upon evidence as to the quality or significance of work done by Mr Sharif when he was with Vitruvian as being relevant to a number of aspects of the case. The evidence relied upon included a considerable amount of material concerned with whether Mr Sharif actually contributed to the development of the fitness device, particularly ways in which prototypes were developed.

87    There was a separately pleaded claim that Mr Sharif failed to conform to an implied term as to the quality of the work that he performed, but ultimately that was not pursued. Nevertheless, the evidence as to what had occurred in relation to the development of the fitness device was relied upon to support the claim of misleading and deceptive conduct advanced by Vitruvian. As explained in the Trial Reasons, the Vitruvian Defendants claimed at trial that evidence as to the quality or significance of the work done by Mr Sharif was relevant. However, that claim was rejected: Trial Reasons at [26]-[29]. The evidence as to the invention of the fitness device by Mr Gregory was also used in a general way to support aspects of the case advanced by the Vitruvian Defendants concerning whether Mr Sharif was a founder of Vitruvian.

88    Therefore, I accept the submission that the provision for costs thrown away by reason of the abandonment of the Patent Claim should be relatively modest. It should be assessed by reference to the costs of dealing with aspects of the Patent Claim in the pleadings and any consideration of the legal issues, as distinct from the forensic issues as to what happened in relation to the invention and development of the fitness device.

89    I consider the figures proposed by Mr Sharif to be somewhat on the modest side, a matter to be brought to account in making a final assessment of the lump sum costs to be awarded to Mr Sharif.

90    As to the allowance for costs thrown away by reason of the abandonment of the Patent Claim, I would allow $30,000 (inclusive of GST) to the Vitruvian Defendants.

Issue (8): What provision should be made for the costs of the Inspection Application?

91    The costs of an unsuccessful interlocutory application by Mr Sharif to inspect certain documents on the basis that there had been a waiver of privilege were reserved: Vitruvian Investments Pty Ltd v Sharif [2023] FCA 471. Mr Sharif accepts that the Vitruvian Defendants are entitled to recover reasonable party and party costs of his unsuccessful interlocutory application and that in assessing the lump sum costs to be awarded in his favour there should also be an adjustment to the costs incurred by him to reflect the fact that he is not entitled to recover any costs associated with that application.

92    There is a minor dispute between the parties as to the amount that should be allowed to the Vitruvian Defendants for the Inspection Application. On the material before me the amount of costs that should be allowed to the Vitruvian Defendants are $20,000 (inclusive of GST).

Issue (9): Should an adjustment be made 'as to the costs that may be recovered by Mr Sharif' on the basis that there was inadequate disclosure by Hall & Wilcox of the costs that were likely to be incurred by Mr Sharif in the conduct of the proceedings?

93    The Vitruvian Defendants advanced a number of submissions concerning the adequacy of the costs disclosure that had been given by Hall & Wilcox. They contended that, for various reasons, those obligations had not been met. In consequence, so it was submitted, Hall & Wilcox could only charge Mr Sharif on the basis of the applicable costs scale. It was submitted for the Vitruvian Defendants that a reduction of up to 40% of the costs claimed would be appropriate depending upon which of the contentions as to deficiencies with costs disclosure was accepted. It was not claimed that Mr Sharif was not liable for any costs. Rather, it was submitted that, in the circumstances, Mr Sharif was not entitled to an order on an indemnity basis that would cover costs above those that would be allowed on the applicable scale.

94    After the possible issues with cost disclosures were raised by the Vitruvian Defendants, Hall & Wilcox and Mr Sharif entered into a retrospective cost agreement. A submission was advanced for the Vitruvian Defendants to the effect that a retrospective agreement entered into in those circumstances 'should not then flow through to a paying party'. It was suggested that to allow a retrospective agreement to affect the costs liability of an unsuccessful party in that way would be to 'punish' the unsuccessful party. The precise nature of the punishment was not developed. Significantly, it was not suggested that the retrospective agreement established some basis upon which Hall & Wilcox may charge fees which was materially different to the basis that had been agreed before undertaking the instructions to act for Mr Sharif in the conduct of the proceedings.

95    For the reasons which follow, I do not accept the submissions advanced by the Vitruvian Defendants concerning the retrospective agreement.

96    All costs orders are made by way of indemnity. Though often termed the 'indemnity principle', it operates as a rule because the Court's discretion to award costs only extends to those costs which a party has incurred a liability to pay: Marsh v Baxter [No 2] [2016] WASCA 51 at [31]-[36] (McLure P, Newnes & Murphy JJA); and Noye v Robbins [2010] WASCA 83 at [295]-[308] (Owen JA, Pullin & Buss JJA agreeing).

97    Accordingly, a party against whom a costs order is sought may object to the making of the order on the basis that the party seeking the order has not incurred a liability to pay costs. Further, a party against whom a costs order has been made may claim that costs should not be allowed pursuant to the order because the party seeking the costs has not incurred any obligation to pay the costs (assuming that any such an issue was not adjudicated at the time that the costs order was made): Frigger v Banning (No 13) [2023] FCA 923.

98    The circumstances in which the retrospective agreement was concluded in the present case were the subject of unchallenged affidavit evidence. The evidence was to the effect that in January 2024, Mr Sharif entered into a new agreement with Hall & Wilcox. It provided for the same method of charging that had applied under previous agreements. It was entered into after full disclosure was given of the relevant costs and the respects in which they exceeded past disclosures, the reason why the amounts exceeded past disclosures and updated estimates of future costs. Mr Sharif was informed of the potential limitations upon the amounts that may be charged to Mr Sharif by reason of the circumstances of past disclosures and was advised to take independent advice. After taking independent advice, Mr Sharif entered into the retrospective agreement.

99    I do not accept the submission for the Vitruvian Defendants that the agreement did not operate retrospectively. It is not supported by the terms of the retrospective agreement.

100    I am satisfied that for the purposes of the applicable regulation the retrospective agreement stands as a separate agreement, that it is expressed to apply and does apply retrospectively, that there is no reason why it may not apply retrospectively and that it is valid and binding upon Mr Sharif.

101    No submission was advanced by the Vitruvian Defendants as to why the retrospective agreement would not be enforceable as between Hall & Wilcox and Mr Sharif.

102    It was not suggested that the retrospective agreement replaced an earlier agreement that applied during the conduct of the proceedings by which it had been expressly agreed that Mr Sharif would have no liability for costs. Nor was it suggested that the retrospective agreement increased the rates that had previously been agreed between Mr Sharif and Hall & Wilcox that would apply in attending to Mr Sharif's instructions as to the conduct of the proceedings. Therefore, it did not create a new form of costs liability that was materially different from that which Mr Sharif and Hall & Wilcox expressly contemplated and intended throughout the conduct of the proceedings.

103    It was not suggested that there was any lack of bona fides as to the terms of the retrospective agreement or that its terms recorded anything other than a genuine agreement between Mr Sharif and his lawyers. Nor was it suggested that the agreement had been entered into for the purpose of perpetrating some form of fraud (at law or in equity) upon the Vitruvian Defendants and for that reason may not be relied upon to the detriment of the Vitruvian Defendants.

104    As was explained by Owen JA in Noye v Robbins at [332]-[338] 'the indemnity principle is flexible, and is designed to allow for a just and fair result'. This is not an instance where there is any suggestion that the terms of the retrospective agreement will deliver some form of bonus or uplift or additional charge beyond that which was reasonably contemplated by the agreement made with Mr Sharif before any of the relevant costs were incurred.

105    In those circumstances, I am satisfied that in the present case the indemnity principle is met by reason of the existence and operation of the terms of the retrospective agreement.

106    Accordingly, it is not necessary to consider the various contentions advanced by the Vitruvian Defendants as to why, absent the retrospective agreement, there was no legal liability on the part of Mr Sharif to meet any legal costs above the applicable scale of costs.

107    It was submitted that the fact that the retrospective agreement was entered into after Mr Sharif and Hall & Wilcox knew the outcome of the proceedings and also knew that a lump sum costs order was to be made in favour of Mr Sharif were reasons why the retrospective agreement should not be allowed to support the claim to indemnity costs. It was intimated that, in those circumstances, a party in the position of Mr Sharif might be inclined to accept an unreasonable or additional liability to pay costs and for that reason, in effect, the Court should not allow any retrospective agreement to be relied upon as a basis for a costs order. To the extent that this was a submission as to how the indemnity principle should be applied in a case like the present, for the reasons that have been given I do not accept the submission. To the extent that this was a submission that the Court should apply some separate and additional principle that would not allow a retrospective agreement to be relied upon as a basis for demonstrating that the indemnity principle had been met, I am not persuaded that there is any basis for a principle of that kind. It has been held that retrospective agreements of the kind made in this case may provide a basis upon which the usual limit on costs may be lifted above those fixed by determinations that establish the costs that may be charged without a written agreement: Walter v Buckridge [No 5] [2012] WASC 495; and Huntingdale Village Pty Ltd (Receivers and Managers Appointed) v Corrs Chambers Westgarth [2018] WASCA 90. To the extent that the submission raised a concern that the retrospective agreement might allow unreasonable costs to be recovered, the Court supervises the reasonableness of the amount of costs that may be recovered pursuant to any costs order. It may do so by a process of assessment or taxation. In a case like the present where costs are to be assessed on a lump sum basis it forms a view as to the reasonable costs that ought to be allowed. As has been explained, even where the order provides for costs to be recovered on an indemnity basis the amount that may be recovered is still subject to limits that the costs must be demonstrated to have been reasonably incurred and to be reasonable in amount.

108    The Court has a discretion as to costs. It is a discretion that must be exercised judicially. Although the discretion is not narrowed by legal rules, its exercise is appropriately guided by settled matters of principle: Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 at [24]; and Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [65], [134].

109    I am not persuaded that there is any generally recognised principle that guides the exercise of the discretion that would require me to decline to make the lump sum cost order on the basis of the rates as agreed by the retrospective agreement.

Issue (10): Should the lump sum order in favour of Mr Sharif be made against all the Vitruvian Defendants?

110    By reason that the Section 1322 Application was brought solely by Vitruvian, the Vitruvian Defendants submitted that the lump sum costs should be apportioned between those proceedings commenced in this Court (in which the Oppression and Patent Claims were raised) and the Section 1322 Application. They proposed an apportionment of 35% for the Section 1322 Application and 65% for the costs of the proceedings initiated in this Court.

111    Mr Sharif contended that there should be a single lump sum order against all the Vitruvian Defendants. This was said to be appropriate because the proceedings were heard together with evidence in one being evidence in the other. In effect, the submission was to the effect that, notwithstanding the manner of their commencement, they concerned a single dispute in which all the Vitruvian Defendants were interested parties. In particular, it was submitted that Mr Gregory had an interest in the orders sought in the Section 1322 Application because those orders were expressed in terms that would benefit all officers of Vitruvian in circumstances where Mr Gregory was the only director and the person who carried out all the relevant conduct for Vitruvian.

112    The Vitruvian Defendants submitted that the approach contended for by Mr Sharif amounted, in substance, to seeking a non-party costs order against the Vitruvian Defendants other than Vitruvian in respect of the costs of the Section 1322 Application.

113    In my view, there is some merit underlying both positions.

114    However, in the end, save for some limited legal submissions concerned with the circumstances in which relief of the kind sought on the Section 1322 Application ought be granted, all parties were joined on all the issues that were raised at trial. Further, in this Court, as a matter of substance, the two proceedings were conducted as a single proceeding. Although the Patent Claim itself was irrelevant to the Section 1322 Application, for reasons that have been given the evidence that was adduced in relation to that claim was relied upon by the Vitruvian Defendants at the trial even though, by that time, the Patent Claim had been withdrawn. No doubt there were some separate costs incurred by Vitruvian only that related to the bringing of the Section 1322 Application. However, it is the costs of Mr Sharif that are being considered for the purposes of making a lump sum assessment.

115    In those circumstances, it would be extremely artificial to attempt any kind of apportionment. Rather, in my view, it is appropriate to approach a lump sum assessment of the costs on the basis that all the Vitruvian Defendants put in issue the matters on which Mr Sharif has been successful and for that reason they all should be liable for those costs. To the extent that separate legal issues were raised by the Section 1322 Application and there were some additional costs associated with pleadings for that application, I would allow for those by making all Vitruvian Defendants liable for 90% of the costs assessed on a lump sum basis and Vitruvian separately liable for 10% of those costs on the basis that they concerned aspects that related solely to the Section 1322 Application.

116    To the extent that there are setoffs available, I would allow them to the costs awarded against all Vitruvian Defendants on the basis that the matters giving rise to those setoffs concerned those aspects on which all Vitruvian Defendants joined issue.

Issue (11): Having regard to the resolution of the above issues, in what amount should the lump sum assessment be made?

117    Lump sum costs orders are undertaken in the interests of efficiency and effectiveness. In the present case the parties agree that undertaking the assessment on a lump sum basis is appropriate.

118    Lump sum cost assessments are to be undertaken with a broad brush (that is to say in an impressionistic way), but nevertheless by a process that is logical, fair and reasonable. The starting point is the total fees charged to the party seeking to recover costs in respect of matters to be covered by the lump sum costs order. Even so, the Court must have sufficient information to be satisfied that a lump sum assessment can be undertaken in a manner that is fair to the parties. As to these matters see: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123-124 (von Doussa J); Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [22] (Giles JA); Hamod v State of New South Wales [2011] NSWCA 375 at [820] (Beazley JA, Giles and Whealy JJA agreeing); Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146; (2017) 253 FCR 403 at [17]-[20]; and Zreika v Royal (No 2) [2019] FCAFC 237 at [22]–[31].

119    In the present case, I have three principal sources of information to aid the lump sum assessment, namely:

(1)    The information provided by the opposing parties as to the costs incurred by them in the conduct of the proceedings, being information that was provided before they knew the outcome, including the amounts in which they would seek an order for costs on a party and party basis if successful.

(2)    A costs summary and other documents prepared by Mr Russell, a barrister with experience in legal costs disputes.

(3)    A costs response and other documents prepared by Ms Pascoe, a costs counsel.

120    Much of the information provided by Mr Russell and Ms Pascoe concerned the adjustments that might be appropriate in circumstances that are not relevant given the conclusions I have reached as to the basis upon which the lump sum assessment should be undertaken.

The position of the Vitruvian Defendants before they knew the outcome

121    In accordance with directions made for the provision of information as to costs that would be claimed if the parties were successful, Ms Htin, a solicitor at Bennett, the solicitors acting for the Vitruvian Defendants, provided an affidavit in which the following statements were made:

(1)    the Vitruvian Defendants incurred $1,125,234.64 (inclusive of GST) in solicitors and counsel fees in the conduct of the proceedings; and

(2)    Pascoe Legal had undertaken a lump sum assessment of the costs that it would be appropriate to seek if the Vitruvian Defendants were successful and had estimated that amount as $726,818.85 (exclusive of GST).

122    Ms Htin produced the lump sum assessment undertaken by Pascoe Legal. It included the following matters that are of relevance for present purposes:

(1)    a reduction of hourly rates for solicitors fees so they did not exceed those provided for in the Federal Court Rules;

(2)    a discount of 30% to account for estimated solicitor-client costs;

(3)    a further discount of 12% to allow for items that would be allowed on a basis other than hourly rates; and

(4)    adding 15% for skill, care and responsibility based on the experience of the lawyers involved and the expedited nature of the proceedings.

123    The lump sum assessment also identified the percentage of the overall lump sum amount that would be claimed that related to particular aspects of the proceedings.

The position of Mr Sharif before he knew the outcome

124    In accordance with the directions made for the provision of information as to costs that would be claimed if the parties were successful, Hall & Wilcox provided a costs summary prepared by Mr Robertson, a costs counsel. He expressed the opinion that the appropriate figure to be sought by way of a lump sum costs order to be $1,419,382.74 (inclusive of GST), being approximately 87% of the actual costs incurred.

125    Mr Robertson expressed the following views to support that opinion:

(1)    in his experience a party will ordinarily recover between 70% and 85% of their costs on a party and party basis;

(2)    key variables applicable in the present case included, the complexity of the work, the expedited nature of the proceedings, the large team involved (which would usually result in a reduction for duplication) and the extent to which work would be assessed on a basis other than time spent under the applicable scale;

(3)    an adjustment had been made to take account of the maximum hourly rates provided for in the applicable scale;

(4)    it was appropriate to allow a reduction for duplication when Mr Sharif changed solicitors and that reduction should be calculated by applying a 20% reduction to work undertaken by Hall & Wilcox during the first four weeks after they took over the conduct of the proceedings for Mr Sharif (being $16,196.66);

(5)    as the team involved at Squire Patton Boggs was larger and involved a great number of junior practitioners it was appropriate for a greater reduction to applied to that firm's costs (25%) than for Hall & Wilcox where the team was smaller and comprised primarily a partner and senior associate (10%);

(6)    a reduction in the fees charged by counsel to reflect the Guide for junior counsel; and

(7)    an allowance should be made for skill, care and responsibility of 7.5%.

The position of Mr Russell as to the appropriate lump sum award to Mr Sharif

126    Mr Russell's final estimate as to the lump sum that should be awarded on an indemnity basis, adjusted after agreement was reached with Squire Patton Boggs to reduce their fees by the amount of $312,257.14, was $1,472,621.20 (inclusive of GST). This amount did not allow for deductions for any offset for awards of costs in favour of the Vitruvian Defendants.

127    Mr Russell's estimate included a reduction for duplication as a result of Mr Sharif changing solicitors ($16,196.66, inclusive of GST) and counsel ($13,250, inclusive of GST).

128    Mr Russell's estimate was undertaken on the basis that two further adjustments would be appropriate, namely:

(1)    an adjustment for wasted costs associated with the Patent Claim which he assessed at 3% of the total lump sum costs otherwise to be allowed; and

(2)    an adjustment for Mr Sharif's costs of his late application for leave to amend and for his unsuccessful application to inspect privileged materials, being about $45,200 (inclusive of GST) on an indemnity basis.

The position of Ms Pascoe as to the appropriate lump sum award to Mr Sharif

129    Ms Pascoe provided estimates on the basis that there were valid cost agreements and on the alternative basis that there were no cost agreements (there being no information as to the cost agreements entered into by Mr Sharif at the time of providing her estimates).

130    Ms Pascoe expressed the view that an appropriate lump sum costs order would be $718,888.90 (inclusive of GST) for party and party costs, alternatively $1,296,292.06 (inclusive of GST) on an indemnity costs basis. After the reduction in the fees charged by Squire Patton Boggs, those figures were revised to $632,995.02 and $1,121,805.88 (both inclusive of GST).

131    The original indemnity costs figure applied a 35% reduction to the first four weeks of work by Hall & Wilcox to remove duplication (being an amount of $28,338.90). It also included a reduction of $300,000 from the professional fees other than counsel fees for work that was not recoverable because it related to the Amendment Application (being about 10% of the reduction), the Inspection Application (being about 10% of the reduction) and the Patent Claim (being about 80% of the reduction or about $240,000). It also included a reduction of 10% for costs said to have been unreasonable in amount or unreasonably incurred. This was a reduction of about 24% of the overall amount of $1,296,292.06. Since the reduction in fees charged by Squire Patton Boggs, the Vitruvian Defendants maintain that there should still be a further reduction of 20% from the reduced figure for professional fees other than counsel fees.

132    The original figure also included further reductions for the amounts claimed for counsel's fees. They were quite substantial. They were said to be supported by the fact that there were fees that related to the Patent Claim, and work said to be 'of a solicitor and client nature'.

133    Before agreement was reached with Squire Patton Boggs to reduce their fees by the amount of $312,257.14, Mr Russell estimated the costs to be recovered on an indemnity basis by Mr Sharif at $1,784,878.34. Therefore, the position of Ms Pascoe at that time was that the overall lump sum indemnity amount estimated by Mr Russell should be reduced by $488,586.30 or 27%. The position advanced by the Vitruvian Defendants after the agreement with Squire Patton Boggs is that Mr Russell's revised figure of $1,472,621.20 (inclusive of GST) should be reduced by $350,815.32 or 23.8%.

Conclusion as to lump sum amount to be awarded to Mr Sharif on an indemnity basis

134    In the above circumstances, in my view, the following matters bear upon determining an appropriate lump sum estimate on an indemnity basis given the order of magnitude difference between the two estimates as just described (that is originally 27% reduction and now 23.8% reduction).

135    First, Mr Russell accepted that his estimate should be the subject of a reduction of about $42,500 for Mr Sharif's own costs relating to the Amendment Application and the Inspection Application.

136    Second, there should be an adjustment to reflect the fact that Mr Sharif was unsuccessful on the hearing as to the terms of relief.

137    Third, Mr Sharif has included costs for practitioners who are not on the Register of Practitioners being an amount of about $70,000. For reasons that have been given, they should be deducted (but allowing for the fact that the figure of $70,000 relates to all costs incurred).

138    Fourth, there is a considerable differential between the counsel fees charged to Mr Sharif compared to those incurred by the Vitruvian Defendants. This indicates that a reduction for reasonableness would be appropriate as to that aspect of the estimate. In addition, even taking account of the reduction in fees charged by Squire Patton Boggs, it would also be appropriate to apply a further reduction for reasonableness as to the fees charged by Hall & Wilcox given the very large differential between the costs incurred by Mr Sharif when compared to those incurred by the Vitruvian Defendants.

139    Fifth, the estimate provided by Mr Russell was on the basis that there should be a further 3% reduction from the total amount for costs associated with the abandoned Patent Claim. Taking account of that submission and the reasons that I have given in relation to the Patent Claim, a further reduction of $44,000 for that aspect is appropriate. This means that the much greater reduction proposed by Ms Pascoe is not appropriate.

140    Sixth, the difference in approaches in providing for the duplication of costs resulting from the change of solicitors is relatively small.

141    Taking all these matters into account, I consider that an appropriate lump sum assessment of costs to be recovered by Mr Shariff on an indemnity basis to be $1,150,000 (inclusive of GST).

Issue (12): What provision should be made in the lump sum assessment for the costs of and incidental to the determination of the appropriate lump sum costs order?

142    The Vitruvian Defendants have been substantially unsuccessful on the issues raised in relation to the lump sum assessment of costs. Mr Sharif has been put to considerable expense in dealing with issues relating to costs disclosure by his own lawyers on which the Vitruvian Defendants have not been successful. On the material available to me, I am satisfied that there should be a lump sum costs award against all the Vitruvian Defendants in respect of the costs associated with the orders for costs. Mr Sharif proposed an amount of $30,000 (inclusive of GST) which was not the subject of any substantive objection. I will include that additional amount in the lump sum assessment.

Conclusion and orders

143    The submissions for all parties were advanced on the basis that the costs order to be made against the Vitruvian Defendants in favour of Mr Sharif should allow by way of setoff any costs amount that should be allowed to the Vitruvian Defendants. As I have indicated, the setoff should not apply to that part of the costs for which Vitruvian alone is to be liable.

144    For reasons I have given, lump sum costs in the amount of $1,180,000 (inclusive of GST) should be allowed to Mr Sharif.

145    The following amounts assessed on a party and party basis (being inclusive of GST) should be offset against the amount of $1,062,000, being 90% of the total lump sum assessment for which all Vitruvian Defendants are liable:

(1)    $17,500 for costs as to determining the final terms of relief concerning the orders for transfer of shares;

(2)    $25,438.66 for costs of the Amendment Application;

(3)    $30,000 for costs thrown away by abandonment of the Patent Claim; and

(4)    $20,000 for the Inspection Application;

being a total amount of $92,938.66

146    Therefore, the net amount of costs to be recovered by Mr Sharif is $1,087,061.34.

147    For reasons that have been given, there should be an order in each of the proceedings that the costs of both proceedings be assessed as a single set of costs with due allowance for the extent to which any of those costs related solely to the proceedings in WAD 153 of 2022. As to the amount of costs to be ordered, there should be the following orders made:

(1)    In WAD 127 of 2022, the Vitruvian Defendants do pay Mr Sharif the amount of $969,061.34 (inclusive of GST) in respect of his costs.

(2)    In WAD 153 of 2022, Vitruvian do pay Mr Sharif the amount of $118,000 (inclusive of GST) in respect of his costs.

Associate:

Dated:    28 February 2024