Federal Court of Australia

North Limited v Zentree Limited, in the matter of Energy Resources of Australia Ltd (Costs) [2026] FCA 1202

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 664F(4) of the Corporations Act 2001 (Cth) the plaintiff is to pay 85% of the first defendant’s costs of the proceeding.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 5 June 2026, the Court made orders pursuant to s 664F of the Corporations Act 2001 (Cth) approving North Limited’s acquisition of the remaining shares in Energy Resources of Australia Limited (ERA). I reserved on the question of costs and made orders for North and the first defendant, Zentree Investments Limited, which was the only active defendant in the proceeding, to file submissions and any affidavits on which they intend to rely in relation to that question: see North Limited v Zentree Investments Ltd, in the matter of Energy Resources of Australia Ltd [2026] FCA 695 (North v Zentree or J). Unless expressly stated, these reasons adopt the same definitions as in North v Zentree.

2    Each party filed submissions and an affidavit in support of its position. In short, North submits that the Court should depart from the default costs position under s 664F(4) of the Corporations Act which requires North to bear Zentree’s costs unless Zentree acted “improperly, vexatiously or otherwise unreasonably”. North seeks a 70% reduction in the costs it is otherwise liable to pay pursuant to s 664F(4) of the Corporations Act, with the result that it would only bear 30% of Zentree’s costs. Zentree submits that North should bear all of its costs.

Relevant principles

3    The compulsory acquisition regime in Pt 6A.2 of the Corporations Act is described at J[8]-[21]. It is not necessary to repeat it here.

4    The question of costs of an application made under Pt 6A.2 of the Corporations Act by the holder of 90% or more of securities in a class for approval to acquire the remaining shares in that class is ordinarily governed by s 664F(4). That subsection provides:

The 90% holder must bear the costs that a person incurs on legal proceedings in relation to the application unless the Court is satisfied that the person acted improperly, vexatiously or otherwise unreasonably. The 90% holder must bear their own costs.

5    In QGold Pty Ltd v Woods (No 2) [2026] FCA 37 Derrington J considered the application of s 664F(4). His Honour surveyed the authorities and set out the applicable principles as follows:

(1)    s 664F(4) seeks to remove a barrier, namely liability for legal costs, that might otherwise discourage shareholders from seeking to have their opposition to a compulsory acquisition notice determined, so long as in doing so they do not engage the attention of the Court improperly: at [7];

(2)    ordinarily under s 664F(4) the 90% holder must bear the costs which any person “incurs on legal proceedings in relation to” the application made under s 664F(1) unless the Court is satisfied that the person has acted “improperly, vexatiously or otherwise unreasonably”: at [16(1)];

(3)    in assessing whether a person has acted “improperly, vexatiously or unreasonably” the Court looks to whether they have, by the position adopted in respect of the relevant proceeding or the manner in which that position was advanced, improperly engaged the Court’s attention: at [16(2)];

(4)    persons have been found to have acted “unreasonably” where they incur costs by raising issues that were specious or misconceived or arguably at odds with accepted appellate authority, causing the unnecessary prolongation of a proceeding and pursuing “misconceived” interlocutory applications that were not supported by sufficient evidence: at [16(3)];

(5)    persons have been found not to have acted “unreasonably” where they incur costs by appearing at the hearing of an application made under s 664F(1) in order to draw the Court’s attention to those matters set out in their notices of objection and to put the 90% holder to proof on the issue of fair value, pursuing an application that is not without some chance of success or presenting a novel question for resolution: at [16(4)]; and

(6)    s 664F(4) contemplates party-party costs: at [16(5)].

Consideration

6    The parties’ respective positions on costs are set out at [2] above.

7    In support of its contention that it should only pay 30% of Zentree’s costs, North submits that Zentree’s conduct was “unreasonable” within the meaning of s 664F(4) of the Corporations Act for the following three reasons:

(1)    Zentree made forensic decisions in respect of its expert evidence which rendered it of little, if any, assistance to the Court;

(2)    Zentree pressed four formal objections in respect of the Notice which lacked merit, were inconsistent with accepted authority, and were unsupported by evidence; and

(3)    Zentree’s interlocutory application for discovery, in respect of which it was largely unsuccessful, was unreasonably broad in scope having regard to the extensive production already made by North, and the confined nature of the question before the Court on an application under s 664F of the Corporations Act.

8    I consider each of those matters below. However, before doing so I address a construction argument raised by Zentree.

9    Zentree observes that North’s application for the Court to depart from the usual approach in s 664F(4) rests solely on its contention that Zentree acted unreasonably. It submits that the context in which the word “unreasonably” appears in s 664F(4), namely the conjunctive words “vexatious” or “improper”, indicates that a narrow meaning should be given to the word so that it resembles, is akin to, or informed by “improper” and “vexatious”. In support of that construction of the subsection, Zentree refers to Perry Herzfeld and Thomas Prince, Interpretation (Lawbook Co, 3rd Ed, 2024) at [6.20]-[6.30]. There, the authors refer to the maxim “noscitur a sociis” that the interpretation of a word may be gathered from its associated words. However, as the High Court has cautioned “‘rules’ or principles of construction may offer reassurance” but “are no substitute for consideration of the whole of the particular text, …, and of its subject scope and purpose”: Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom (2006) 228 CLR 566; [2006] HCA 50 at [54] (Gummow and Hayne JJ).

10    I do not accept Zentree’s submission in relation to the construction of s 664F(4). The meaning of the section is clear having regard to its text. There is no reason to give the term “unreasonably” a narrow meaning because of the inclusion of the words “improperly” and “vexatiously” in s 664F(4). The section specifies three types of disentitling conduct. They are each different and might comprehend distinct types of conduct including of differing severity and impact on the proceeding. The inclusion of the three types of conduct suggests an intentional choice to cover different types of disentitling conduct and militates against the narrow interpretation urged by Zentree.

11    This conclusion does not deny the protective purpose of s 664F(4) of the Corporations Act which informs application of the provision by ensuring that a person is not deprived of costs merely because an objection fails or the 90% holder’s evidence is ultimately preferred. The question remains whether, by the position adopted or the manner in which it was advanced, the person engaged the Court’s attention “otherwise unreasonably” in the sense explained at [5(4)] above. It is unnecessary to interpret the standard of unreasonableness by reference to conduct that is vexatious or improper, and therefore to constrain the ordinary meaning of “unreasonable”, before the default position on costs can be disturbed.

Zentree’s expert evidence

12    North submits that testing of Zentree’s expert evidence occupied a substantial part of the trial. It says that, rather than assisting the Court to test the evidence given by North’s experts, most of Zentree’s expert evidence did not address the central question in the case: the value of ERA’s mineral assets on a “highest and best use” basis, where that phrase directs attention to uses that are legally permissible.

13    True it is that, notwithstanding the common ground as to the ultimate question of value, Zentree’s experts, Dr Burrows and Mr Rossi, accepted that their evidence was prepared on assumptions that excluded any consideration of the legal, social, political and other non-technical constraints that existed in relation to the development of ERA’s mineral assets. That they did so meant, as I found to be the case, that their evidence was of little, or no, assistance to the Court: see J[276].

14    However, I am not persuaded that for Zentree to proceed as it did means that it acted “unreasonably” as contemplated by s 664F(4).

15    There is no dispute that Zentree was entitled to challenge the basis on which North said that the value in the Notice gave a fair value for the securities, including by adducing expert evidence. That is indeed a significant aspect of the role of a party who appears to object to the application for approval. Zentree did so by calling a number of experts, including Dr Burrows and Mr Rossi, and instructing those experts to undertake the valuation task. Their evidence (as was the case with all of the expert evidence relied on by the parties) was detailed and sought to address the complexities of valuing the mineral assets in issue. My finding (at J[344]) that Dr Lee had only limited experience in the area on which he was instructed to opine (i.e. preparation of costs estimates for major infrastructure projects and mine closure projects) does not cause me to come to a different conclusion. Dr Lee prepared a detailed report which was considered by North’s experts and was cross-examined. Accordingly, while Zentree’s experts adopted assumptions and approaches that the Court ultimately did not accept, their evidence had an identified forensic basis and addressed a complex valuation issue.

16    Further, North submits that Zentree’s approach to its expert evidence resulted in a material increase to the length of the trial with the proceeding listed for hearing with an estimate of 8 to 10 days. North says that, while Zentree was entitled to test its experts, Zentree’s expert evidence largely failed to assist the Court in determining the question of fair value and North should not bear the full financial burden of that failure.

17    The trial was listed for 10 days with the Court ultimately sitting for 9 days. Much of the hearing time was taken up with cross-examination of the experts. The cross-examination of the experts in conclaves was a necessary part of the trial in circumstances where the experts for each party had divergent views and, in some cases, approaches, to a complex valuation exercise which lay at the heart of this proceeding. It was necessary to test North’s evidence and for the Court to be provided with that assistance so that the respective views of the experts could be appropriately ventilated. The countervailing evidence enabled me to reach a view about the preferable approach.

18    In these circumstances, neither the rejection of Zentree’s expert opinions nor the hearing time occupied in testing them, establishes that Zentree acted “unreasonably” within s 664F(4) of the Corporations Act.

Formal objections to the Notice

19    In its notice of objection, Zentree raised four formal objections to the validity of the compulsory acquisition notice. By the time of closing submissions, only three of those objections were pressed: J[154]. Each of those remaining three objections, described below, was rejected.

20    Zentree contended that the LEA Report and SRK Report did not comply with s 667C (and therefore, Pt 6A.4) of the Corporations Act or ASIC RG 111 because they applied incorrect and inappropriate valuation methodologies. I rejected that objection finding that, having regard to the authorities and the latitude afforded under s 667C of the Corporations Act, the approach adopted by North’s experts was an appropriate methodology for the purposes of the Notice: J[155]-[157].

21    Zentree now submits that its objection based on the valuation methodology applied by LEA and SRK is not at odds with authority. It says that where there are competing experts in a case, each may adopt their own methodology and the Court must decide between them. It is not contrary to any authority to put forward an expert whose methodology differs from that adopted by the opposing party. That submission does not answer the criticism now raised. Zentree was entitled to contend that another valuation methodology produced a preferable assessment of fair value (which it did at trial). However, Zentree’s formal objection to the Notice was that the LEA Report and SRK Report accompanying the Notice did not comply with s 667C of the Corporations Act because of the methodologies they adopted. It was not, as framed by Zentree at trial, about the preferable methodology to adopt to assess fair value. For the reasons given at J[155]-[157], the statutory provision permitted the methodologies adopted.

22    The next formal objection raised by Zentree was that North’s experts relied upon subjective decisions made by or at North’s and/or ERA’s direction and failed adequately to identify the source material, instructions and/or assumptions upon which they relied upon. I rejected that objection because of a failure to identify the way in which it was said that LEA and SRK incorrectly relied upon subjective decisions as directed by North and/or ERA and, because on my review of the LEA and SRK Reports, I was satisfied that they adequately identified source material and set out any assumptions upon which their authors relied: J[158]-[163]. Zentree now submits that it did expressly identify the subjective decisions made by ERA which formed the basis of this formal objection, referring to its opening submissions. To the extent Zentree now points to [4], [24] and [36]-[37] of its written opening submissions at trial, those references are general and vague. No express identification was made in the context of the formal objection pressed in closing.

23    Zentree’s final formal objection in relation to the Notice was an alleged failure to disclose material information as required by s 664C(1)(e) of the Corporations Act. I found that Zentree had failed to adduce any evidence that the alleged omissions were material: J[171]. North submits that the need for evidence of that nature ought to have been apparent to Zentree given the authorities.

24    Zentree submits on this application that the information which North failed to disclose was identified with specificity in Zentree’s closing submissions at [101] and was “[t]he reliance placed by North’s experts on the KPMG audit statement, and the reliance on communications between LEA and North as part of the reason for discounting a considerable forecast costs savings of more than $200 million”. But at [101] of its closing submissions, Zentree addressed “contingencies”, in the context of its submissions about the Rehabilitation Provision. It was not addressing its formal objection to the Notice. Zentree’s attempt to close the gap after the fact is rejected.

25    In my view the formal objections made to the Notice that were pressed were either misconceived, because they were contrary to authority, or made without supporting evidence. North was required to devote time and incur costs in responding to these objections, which, as set out above, were rejected. In these circumstances I am satisfied that in pursuing the objections and ventilating them at trial, Zentree acted otherwise “unreasonably” and should not have its costs associated with that aspect of the proceeding: see Austrim Nylex Ltd v Kroll (No 3) (2002) 42 ACSR 479; [2002] VSC 290 at [24]-[26] (Warren J).

Zentree’s discovery application

26    There was evidence before me about the provision of documents by North to Zentree in particular categories. The parties could not agree on all categories of documents sought by Zentree and thus Zentree filed an interlocutory application for discovery on 9 September 2025 seeking 28 categories of documents (discovery application). It amended that application two days prior to its hearing reducing the number of categories it pressed to 22 (amended discovery application).

27    The amended discovery application was heard on 26 September 2025. Orders were made on 29 September 2025 for the production of documents in seven of the 22 categories pressed.

28    North submits that Zentree was on notice from at least 18 June 2025 of its concern about the scope of the forensic inquiry that Zentree appeared to be adopting in respect of the proceeding, having regard to its broad document requests. Notwithstanding that, Zentree filed the discovery application seeking a broad range of documents and that the approach taken by Zentree in that application was unreasonable in circumstances where:

(1)    Zentree pressed for discovery of 28 categories of documents when North had already produced 1,379 documents to Zentree;

(2)    two days before the interlocutory hearing, and after the parties had already filed evidence, Zentree served the amended discovery application;

(3)    at the hearing on 26 September 2025 Zentree further narrowed its application to 21 categories, and indicated that it would not be pressing proposed order 3 of the amended discovery application, by which it sought an order that North put on extensive evidence in support of any production;

(4)    Zentree was successful in obtaining orders for discovery in seven categories, two categories for which North had already produced documents to Zentree prior to the filing by Zentree of its discovery application; and

(5)    Zentree was unsuccessful in obtaining the Sabre order which it sought in the amended discovery application.

29    There was some difference in emphasis in relation to the interactions between the parties in relation to Zentree’s requests for categories of documents and the events that transpired after the discovery application was first filed. For example, Zentree emphasises that immediately after the filing of the discovery application, North produced documents in six of the categories the subject of the application. In other words, one possible effect of the filing of the discovery application was to bring about production in those categories.

30    The question is whether Zentree otherwise acted unreasonably in pressing the amended discovery application. In my view it did not. Although Zentree obtained orders in only seven of the 21 categories pressed at the hearing and did not obtain a Sabre order, the history of the parties’ dealings, the production made after the application was filed, and Zentree’s partial success on its amended discovery application prevent Zentree’s conduct in pursuing the amended discovery application as being characterised as acting “unreasonably” within s 664F(4) of the Corporations Act.

Conclusion

31    I have found that Zentree acted unreasonably only in maintaining and arguing its formal objections to the Notice at the hearing. Accordingly, it is appropriate that the portion of Zentree’s costs which North is to bear should be reduced. A broad-brush approach is typically applied on the apportionment of costs: see for example QGold (No 2) at [32]. Applying that approach and having regard to the relative time spent addressing the formal objections both in submissions and at the hearing, I would reduce Zentree’s costs to be borne by North by 15%.

32    I will therefore order that North bear 85% of Zentree’s costs of the proceeding under s 664F(4) of the Corporations Act.

Associate:

Dated:    24 August 2026

SCHEDULE OF PARTIES