Federal Court of Australia

Windsor Family Assets Pty Ltd v Green Day Energy Pty Ltd (Administrators Appointed) (No 2) [2024] FCA 412

ORDERS

THE COURT ORDERS THAT:

1.    The third defendant, Mr David Patrick Hutchinson, pay the plaintiffs’ costs of the action on an indemnity basis.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    On 21 December 2023, the principal decision in this matter was handed down: Windsor Family Assets Pty Ltd v Green Day Energy Pty Ltd (Administrators Appointed) [2023] FCA 1651. The plaintiffs, Windsor Family Assets Pty Ltd and Mr Bradley Carswell, were wholly successful in obtaining the relief that they sought. That relief concerned the manner in which Mr Carswell had been removed as a director of Green Day Energy Pty Ltd (Green Day Energy) and the subsequent appointment of administrators to that company. In brief, it was held that there was no foundation at all for the removal of Mr Carswell and no justification at all for the appointment of administrators.

2    Not surprisingly, the plaintiffs now seek an order for their costs. They seek them only against the third defendant, Mr David Hutchinson, but they seek them on an indemnity basis. The plaintiffs rely upon two foundations as justifying an order for costs this basis. The first being that Mr Hutchinson’s defence of the matter was hopeless and, effectively, an abuse of process. The second being that he had unreasonably refused two offers to compromise the dispute, which were each said to have taken the form of a Calderbank offer.

3    Mr Hutchinson accepts that the plaintiffs should have an order for costs in their favour but he disputes that they ought be paid on an indemnity basis.

Relevant principles

4    There was no dispute between the parties as to the applicable principles. It is undoubted that, pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), the appropriate order for costs is in the discretion of the Court, though the starting position provided by rr 40.03 and 40.04 of the Federal Court Rules 2011 (Cth) is that they follow the event unless the Court otherwise orders. It is also undoubted that, in the ordinary course, costs are awarded on a standard basis. However, they might be made payable on an indemnity basis where there is some special or unusual feature of the particular case.

5    The principles relating to the awarding of costs on an indemnity basis for improper conduct in the course of litigation were identified by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, 233 – 234, where the following was said:

…. evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestly JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)).

6    That proposition is supported by the following statement of principle articulated by Professor Dal Pont in Law of Costs (LexisNexis, 5th ed, 2021) at 617 [16.55]:

A special costs order may ensue where it appears to the court ‘that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success’, in which case the action ‘must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.’

(Emphasis in original and footnote omitted).

7    In this case Mr Hutchinson was the defendant, but the principle nevertheless applies to the manner in which the defence was conducted. That is, the defence of claims where there is no valid basis for doing so, can justify an order for costs on the indemnity basis.

Defence was hopeless or an abuse of process

8    As appears from the principal reasons in this matter, Mr Hutchinson’s defence of the plaintiffs’ claims could legitimately be described as an abuse. It was, to any appropriately trained lawyer, hopeless and that is true both in relation to the factual basis of the defence as well as the legal basis.

9    There was no reasonably open conclusion other than that Mr Hutchinson had knowingly circumvented the rights of the shareholders in Green Day Energy so as to purport to remove Mr Carswell as a director and thereby take control of the company. At no time whilst he was implementing his strategy did he reasonably believe that he was legitimately the only shareholder entitled to vote at meetings. He could not have legitimately believed that he did not need to give notice to other shareholders of the meetings he purported to hold, and nor could he have believed that Green Day Energy was insolvent when he purported to place it into voluntary administration. Rather, his actions were nothing more than contrivances engaged in by him for the purposes of attempting to wrest control of the company from the other shareholders. Moreover, the attempted use of the provisions of Pt 5.3A of the Corporations Act 2001 (Cth) to further Mr Hutchinson’s aims was quite improper. Mr Hutchinson’s conduct in that respect was not dissimilar to that identified in Spacorp Australia Pty Ltd v Fitzgerald (2001) 19 ACLC 979, and it is noticed that there, this type of abuse of process was met with a costs order on a solicitor and own client basis.

10    In the present circumstances, Mr Hutchinson’s defence of the claims against him, despite it being obvious from the evidence that it was hopeless, constituted sufficient misconduct to warrant the ordering of costs on an indemnity basis.

11    I interpolate here that none of this is a reflection on his legal representatives. There is nothing to suggest that they acted otherwise than with propriety. In particular, Mr Hickey of counsel deftly navigated the fine line between making the case his client wished to be advanced and acting within the professional constraints required of him. He undoubtedly put the very best case that was possible in the circumstances — he was simply disadvantaged by the material with which he had to work.

Unreasonable refusal of offers

12    The second foundation on which the plaintiffs sought an order for indemnity costs is that Mr Hutchinson unreasonably refused to accept certain offers of settlement which were referred to as “Calderbank” offers. The first was contained in a letter dated 7 September 2023 and the second was contained in a letter dated 13 October 2023.

13    The principles relevant to the exercise of the Court’s discretion in circumstances where a Calderbank offer has been made were carefully articulated by Bond J in S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323. I gratefully adopt the erudite observations of his Honour at [12] – [14]:

Third, one feature which may justify a departure from the usual rule is the rejection of a Calderbank offer to compromise. However, it is wrong to think that an offeree’s rejection of a Calderbank offer gives rise to a presumption that the offeree should pay the offeror’s costs on an indemnity basis if the offeree obtains a less favourable result than contained in the offer. Rather, the correct approach is to consider whether the rejection of the Calderbank offer, in all the circumstances, justifies a departure from the usual rule.

Fourth, the balance between the competing policy considerations of, on the one hand, appropriately encouraging settlement and, on the other, not discouraging potential litigants from bringing their disputes to the courts, is found by applying a test of “reasonableness”. The policy rationale for requiring the offeree to indemnify the offeror for costs incurred after the offeree’s unreasonable rejection of an offer is that, from the time of the unreasonable rejection, notionally the real cause and occasion of the litigation is the unreasonable attitude adopted by the offeree.

Fifth, deciding the critical question of whether the offeree’s rejection of the offer is unreasonable in all the circumstances will always involve matters of judgment and impression. However, the discretion as to costs must be exercised judicially and is subject to review in accordance with the principles set out in House v The King (1936) 55 CLR 499 at 505. Without being exhaustive concerning the considerations which should be taken into account, a court should ordinarily have regard to at least the following matters:

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

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

(c)     the extent of the compromise offered;

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

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

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

(Emphasis in original and footnotes omitted).

14    By the first offer on 7 September 2023, the plaintiffs proposed the settlement of the dispute on the basis that Mr Hutchinson would:

(a)    acknowledge that Mr Carswell remained a director of Green Day Energy and take steps to rectify ASIC’s records accordingly;

(b)    acknowledge that the appointment of administrators was invalid and of no effect, and communicate to the relevant parties that fact;

(c)    personally repay any fees incurred by Green Day Energy in relation to the administrators; and

(d)    provide access to the books and records of the company and other requested information about the finances of the company.

The offer did not require Mr Hutchinson to pay any legal costs of the plaintiffs.

15    Whilst it can be accepted that the offer was made in good time, in the sense it was made before the proceedings were started, the time limited for acceptance, being one day, was very narrow. The plaintiffs sought to overcome that by saying that Mr Hutchinson was familiar with all the issues which had been debated at length. With respect, a period of one day is hardly suitable, and it was not a reasonable offer for that alone.

16    Further, whilst the offer made some attempt to be a real compromise by not seeking any costs, it did require Mr Hutchinson to personally repay any fees incurred by Green Day Energy in relation to the administration. It is not known how much those fees were and, despite the fact that they were improperly incurred, the recovery of those fees was not part of the relief sought in these proceedings. It is not possible, therefore, to assess whether or not the plaintiffs’ success in the proceedings is greater than they would have been achieved by the offer. Nor is it possible to know whether Mr Hutchinson’s refusal of the offer was unreasonable in the circumstances.

17    In addition, this element of the offer is not sufficiently clear. The expression “fees” might refer only to the professional fees charged by the administrators or it might extend to costs, disbursements and expenses incurred by the administrators in undertaking the requirements of the administration. It is, with respect, too vague and not capable of being appropriately ascertained at this point.

18    Putting aside the above, however, the offer cannot properly be regarded as a Calderbank offer. Critically, it did not identify that it was a Calderbank offer, did not state that it would be later relied upon in respect of costs and, despite a section of the letter being dedicated to describing to Mr Hutchinson the proper use of the phrase “without prejudice”, it was not itself marked as being without prejudice save as to costs, as is required. It therefore was not a Calderbank offer and cannot support the making of an order that Mr Hutchinson pay the plaintiffs’ costs on an indemnity basis.

19    The second offer, made on 13 October 2023, was equally ambiguous as the first, although in a slightly different way. In it, the plaintiffs’ proposal required that the administrators would not charge fees, costs or disbursements for the work done in the administration and that they would accept the sum of $50,000 plus GST, to be paid by Mr Hutchinson. As that requirement imposed upon Mr Hutchinson the obligation to induce third parties to agree to the settlement, it can hardly be said to be unreasonable of him not to accept it.

20    Further, it is questionable whether the offer was capable of being accepted, and therefore capable of amounting to a Calderbank offer, given that it appeared to envision further negotiations with the administrators before the compromise could be effected.

21    In any event, the offer was not sufficiently clear that the Court could reach the conclusion that Mr Hutchinson’s rejection of it was unreasonable.

22    It follows that the issuing and the responses to the two letters relied upon were irrelevant for the purposes of determining the appropriate costs order in this case.

Result

23    In the result, the appropriate order is that the third defendant, Mr David Patrick Hutchinson, pay the plaintiffs’ costs of the action on an indemnity basis.

Associate:    

Dated:    24 April 2024