Federal Court of Australia

Mitchell v Orex Holdings Pty Limited [2026] FCA 1073

ORDERS

THE COURT ORDERS THAT:

1.    The respondents pay the applicant’s costs of the application filed on 3 July 2026 to be taxed or as agreed.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    These reasons concern the question of the costs of an interlocutory application brought by the applicant, Mr Glenn Mitchell, for urgent relief in connection with proceedings commenced by him against Orex Holdings Pty Limited (Orex) and the shareholders of that company. The application was ultimately resolved by agreement between the parties, resulting in orders being made by consent.

2    For the reasons which follow, the applicant should be entitled to his costs of the application, notwithstanding that it was resolved without the need for a hearing.

Background

3    There is no need, on this occasion, to traverse the substantive background to these proceedings. It suffices to note that the applicant and second to twelfth respondents are members or shareholders of the first respondent, Orex, and that a dispute has arisen between them concerning their respective rights inter se. Relevantly, it is alleged that Mr Mitchell is in default of the relevant shareholders agreement (referred to as the “Securityholders’ Deed”), by reason of his contravention of a restraint of trade clause. He was issued with a notice of default in respect of that alleged breach, with which the shareholders contend he has failed to comply. According to the shareholders, that failure enlivened an option period under the Securityholders’ Deed during which they may acquire his shares.

4    Mr Mitchell claims that the other shareholders have no entitlement to exercise the option. He also appears to assert that he has been unfairly excluded from participation in the management of Orex.

5    On 3 July 2026, Mr Mitchell filed an interlocutory application in these proceedings, seeking orders restraining the respondents from exercising the option under the Securityholders’ Deed, and from taking any steps to transfer, sell, or otherwise deal with his shares in Orex. As mentioned, shortly prior to the hearing of the application, the parties reached agreement as to the scope and form of the restraint. Orders were made to that effect at the hearing on 3 August 2026.

The submissions as to costs

6    Mr Mitchell claims that he is entitled to an order that the respondents pay his costs of the application, on the basis that it could have been avoided had the respondents provided undertakings not to take adverse steps against him pending determination of the dispute.

7    Conversely, the respondents submit that no order should be made as to costs, as the application was resolved without a hearing on the merits, citing Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (Lai Qin). In particular, they rely on the observations of McHugh J in Lai Qin at 624 – 625:

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

8    The respondents submit that to make an order for costs in these circumstances would, in effect, require the Court to make a prediction as to the outcome of a hypothetical case: Clark v ING Life Ltd [2007] FCA 1960 [16]; Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 [5].

9    Both parties’ submissions rely upon the events which took place prior to the filing of the application. It is, therefore, appropriate to set them out in some detail.

Timeline of events prior to the interlocutory application

10    The exact origin of the dispute between the parties is not particularly clear on the material presently before the Court, though it appears to have first arisen in March 2026, at a time when Orex intended to engage in a capital raising process.

11    Relevantly, on 24 March 2026, Mr Mitchell wrote an email to the managing director of Orex, Mr Edwin Sargeant, in relation to the proposed capital raising. In it, he raised a concern that Mr Sargeant had not advance a shareholder’s loan to Orex at the time of its foundation, as all shareholders agreed to do under the Securityholders’ Deed. He requested that Mr Sargeant confirm whether that was the case.

12    In apparent response, on 1 April 2026, Mr Sargeant issued a “Formal Breach Notice” to Mr Mitchell, which alleged that he had contravened the Securityholders’ Deed by engaging, directly or indirectly, in a business that competed with Orex. That appears to refer to Mr Mitchell’s employment with Efficient Lighting Systems, a company by which he had been employed since April 2025. He claims that he made no secret of that employment.

13    On 4 June 2026, Mr Tom Grant, a director of Orex, wrote to Mr Mitchell on behalf of the board. Relevantly, he explained that the shareholder loan arrangements, which Mr Mitchell had understood to exist, had been adopted only for “tax purposes” and that the loans were, in substance, capital contributions. The letter also stated that Mr Sargeant’s contribution “took a different form to the cash contributions made by other Securityholders”, to the extent that he contributed “industry expertise, commercial relationships, and the work of establishing and growing the business”.

14    In relation to the restraint of trade dispute, Mr Grant advised that the letter constituted a further notice of default under the Securityholders’ Deed. He stated that, unless the alleged default was remedied within 30 days, the remaining shareholders would be entitled to exercise an option to acquire Mr Mitchell’s shares.

15    On 23 June 2026, Mr Mitchell, by his solicitors, Bennett & Philp, wrote to Orex and the remaining shareholders in response to Mr Grant’s letter of 4 June. That letter traversed, in some detail, the numerous matters in dispute between the parties, which need not be assayed here. Relevantly, however, it demanded that Orex and each of the remaining shareholders provide written undertakings that they would not exercise, or purport to exercise, any option to acquire Mr Mitchell’s shares. It warned that, if such undertakings were not provided, Mr Mitchell reserved his rights to seek urgent interlocutory relief as may be necessary.

16    On 29 June 2026, a letter was sent on behalf of Orex and the remaining shareholders in response to Bennett & Philp’s letter of 23 June. Although the letter purported to be under the hand of Mr Sargeant, it appears to have been drafted by a person with legal expertise. In that regard, the Court was informed that Orex was not legally represented at the time, though whether it nonetheless received some form of legal assistance was less clear. In any event, the letter rejected Mr Mitchell’s requests for the undertakings. It relevantly stated:

The Company’s position, and the position of the remaining Securityholders, regarding Mr Mitchell’s continuing breach of the Securityholders Deed has also been comprehensively set out. That position stands.

The notice of continuing breach remains on foot. Mr Mitchell’s options for remedying the breach have been clearly identified. If the breach is not remedied within the period stated in the notice, the Company and the remaining Securityholders reserve all rights available to them under the Securityholders Deed, including in respect of any specified event, transfer rights, valuation consequences, injunctive relief, damages, costs and any other remedies available at law or in equity.

For clarity, the remaining Securityholders do not agree to sign the undertaking provided with your correspondence. The undertaking is not accepted. The remaining Securityholders do not agree to waive, limit, abandon or fetter any rights that may be available to them under the Securityholders Deed, including any rights arising under clauses 8, 12 or 19.

Nothing in this letter should be taken as a waiver of any rights of Orex Holdings Pty Ltd, Xero Distribution Pty Ltd, the Board, any director or any Securityholder.

The Company and the remaining Securityholders do not intend to respond further to repetitive, reformulated or unsupported allegations already dealt with through the clause 20 process. Any properly particularised request based on a specific legal entitlement will be considered on its merits, subject always to relevance, privilege, confidentiality, commercial sensitivity, third-party obligations, privacy, Mr Mitchell’s continuing conflict, and the Company’s obligation to protect its confidential and commercially sensitive information.

17    As the foregoing demonstrates, the letter represented an emphatic denial by the respondents of Mr Mitchell’s claimed rights, and an equally emphatic refusal to engage with him about them.

18    On 30 June 2026, Mr Andrew Lambros of Bennett & Philp, sent an email to the remaining shareholders, in which he indicated that it was apparent that the dispute was to proceed to litigation, and sought confirmation that Mr Sargeant was authorised to speak on their behalf.

19    On 1 July 2026, Mr Lambros sent a further email to the respondents, seeking a response to his earlier email and proposing a course that would obviate the need for an urgent application for injunctive relief. He said:

I note we have not received a response to my email yesterday.

Given Edwin Sargeant is not a lawyer and court proceedings are about to be filed we have addressed this further correspondence to everyone who will be a party to these proceedings.

To avoid an urgent court application next week with the associated costs that will be claimed against you we once again request that you all simply agree not to take action against our client in respect of the alleged default pending determination by the court of the dispute. This is a simple request given the proceedings will seek declarations that there has been no default for the reasons set out in detail in our earlier letters.

We will move promptly to have this heard by the court and are willing to work on a sensible and quick timetable with your lawyers (once we know who they are) and fail to see any prejudice to any party in the meantime in agreeing to such a process.

If this request is refused, we will tender this correspondence and our previous correspondence to the court in seeking orders that the costs of any injunction application next week be paid for by you as you have clearly been given the opportunity to avoid the costs of that initial application.

20    It is apparent that none of the respondents availed themselves of the invitation offered by Mr Lambros. However, each of them confirmed that they had given authority to the Orex board to act on their behalf.

21    On 3 July 2026, Mr Mitchell commenced these proceedings by filing an originating application, together with an urgent interlocutory application and supporting affidavit material. Unsealed copies of those documents were served on the respondents later that day, and sealed copies were provided on the following Monday, 6 July 2026.

22    On 6 July 2026, orders were made by consent for the filing of material so as to bring the interlocutory application on for hearing. The respondents undertook not to take steps to exercise, or purport to exercise, their rights against Mr Mitchell prior to the determination of the application.

23    On 16 July 2026, being the day immediately prior to the date by which the respondents were ordered to file their material, their solicitors sent a letter to Bennett & Philp, which made an offer to resolve the interlocutory application:

Counteroffer

11.    In order to avoid unnecessary costs and to permit the substantive dispute to proceed to final determination, our clients make the following counteroffer:

a.    Our clients will consent to the interlocutory restraint sought by your client’s Interlocutory Process pending the final determination or resolution of these proceedings on the condition that your client provide the usual undertaking as to damages;

b.    If, upon the final hearing, the Court determines that our client’s breach notice dated 3 June 2026 was valid and warranted, your client agrees that the time within which the option arising from that breach notice under clause 8.2 of the Securityholders’ Deed be extended to the date which is 30 days after the Court makes final orders (or, if an appeal is filed, 30 days after any appeal finally determines those orders) or within 30 days after any final resolution of these proceedings;

c.    The Interlocutory Process filed 3 July 2026 otherwise be dismissed with no order as to costs (with the intent that each party bear their own); and

d.    All issues concerning preliminary discovery be reserved and dealt with separately, if necessary, at an appropriate time.

24    In the week prior to the hearing, the parties reached an agreement as to the application. The orders made by consent were in not dissimilar terms to those which appeared in the counteroffer:

THE COURT ORDERS, BY CONSENT, THAT:

1.     Upon the applicant providing the usual undertaking as to damages, until further order of the Court, the respondents be restrained from:

(a)    exercising, or purporting to exercise, in relation to the applicant, the option conferred under clause 8 of the Securityholders’ Deed in relation to Orex Holdings Pty Ltd ACN 609 761 024 entered into on or about December 2015 (Deed); and

(b)     otherwise taking any steps to transfer, sell or otherwise deal with the shares held by the applicant in the first respondent.

2.     The matter be listed for a case management hearing at 9:30 am AEST on 11 August 2026.

THE COURT NOTES THAT:

3.     The applicant does not admit that any valid option is presently capable of being exercised under clause 8.2 of the Securityholders’ Deed. However, the applicant agrees that if, at the final hearing in these proceedings, the Court determines that the first respondent's breach notice dated 4 June 2026 was valid and warranted, the time within which the option arising from that breach notice under clause 8.2 of the Securityholders’ Deed be extended to the date which is 30 days after the Court makes final orders (or, if an appeal is filed, 30 days after any appeal finally determines those orders) or within 30 days after any final resolution of these proceedings.

4.    The respondents have agreed to the restraint in these orders in reliance on the applicant’s agreement referred to in paragraph 3, above.

Should a costs order be made?

25    It is beyond doubt that a party is entitled to test the fortitude of another party who threatens to commence litigation. That is what the respondents did on this occasion. Whereas it was open to them to enter into an agreement to resolve the issues raised by the foreshadowed application, they elected not to do so. Indeed, their correspondence suggests a positive unwillingness to engage in any meaningful negotiation with Mr Mitchell and his legal representatives. That is particularly apparent from Mr Sargeant’s letter dated 29 June 2026, which made clear that the respondents had no intention of departing from their asserted position.

26    Whilst it is perfectly legitimate to adopt such a stance, it is another matter if that position is subsequently abandoned. As it transpired, rather than maintaining their position and defending the application, the respondents capitulated once it was filed.

27    The effect of that conduct was that Mr Mitchell was forced to file the application in order to protect his rights, notwithstanding that he was clearly prepared to reach some arrangement with the respondents to preserve the parties’ rights pending determination of the proceedings.

28    In those circumstances, there can be no real doubt that the applicant is entitled to a costs order in his favour in respect of the application. The need to file it would have been obviated had the respondents adopted a commonsense approach, which they eschewed in favour of a pugilistic stance. Again, whilst they are undoubtedly entitled to do so, they cannot now be heard to suggest that they were not responsible for the costs ultimately incurred.

29    It may well be the case that the respondents’ change of position was consequent upon their engagement of solicitors after the commencement of proceedings. In that sense, one might surmise that they received legal advice which caused them to reconsider their position. However, that does not alter the fact that Mr Mitchell was required to incur the costs of filing the interlocutory application in order to protect his position.

30    Therefore, there is no merit in the respondents’ submission that no order should be made as to the costs of the interlocutory application. Their reliance on Lai Qin is misplaced, as the present case does not require the Court to speculate as to the likely outcome of a contested hearing. Rather, the evidence demonstrates that the respondents’ conduct left Mr Mitchell with little choice but to file the application in order to preserve his position. Having adopted that position, despite being afforded a clear opportunity to avoid the application by giving undertakings to preserve the status quo, the respondents acted unreasonably in a manner sufficient to justify an order for costs against them, notwithstanding that they ultimately agreed to the orders sought. That conclusion is consistent with the observations of McHugh J in Lai Qin at 624 – 625.

Conclusion

31    It follows that the appropriate order is that the respondents pay the applicant’s costs of and incidental to the interlocutory application filed 3 July 2026.

Associate:    

Dated:    11 August 2026

SCHEDULE OF PARTIES