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ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd (ACN 007871 409) [2006] FCA 1119 (23 August 2006)

Last Updated: 23 August 2006

FEDERAL COURT OF AUSTRALIA

ACN 116 149 092 Pty Ltd v Coopers Brewery Ltd (ACN 007 871 409)

[2006] FCA 1119

PRACTICE AND PROCEDURE – leave to discontinue – leave unopposed – costs – plaintiff commenced proceedings with knowledge of the likelihood that litigation may become futile – litigation conducted reasonably until proceedings became futile – whether costs order should be made in favour of defendant

Held: Plaintiff entered into litigation with knowledge of risk involved – appropriate in the circumstances that a costs order be made

Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth) s 43(1)

Federal Court Rules O 22, O 62 r 26(1)

Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 cited
Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 143 ALR 1 referred to
Smith v Airservices Australia [2005] FCA 997; (2005) 146 FCR 37 referred to
Harvey Norman Holdings Ltd v Fels [2002] ATPR 41-852 cited
O’Neill v Mann [2000] FCA 1680 cited
Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151 cited

ACN 116 149 092 PTY LTD (ACN 116 149 092) v COOPERS BREWERY LTD (ACN 007 871 409)

No VID 1195 of 2005

FINN J
23 AUGUST 2006
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	VID 1195 OF 2005

BETWEEN:	ACN 116 149 092 PTY LTD (ACN 116 149 092) Plaintiff
AND:	COOPERS BREWERY LTD (ACN 007 871 409) Defendant
AND BETWEEN:	COOPERS BREWERY LTD (ACN 007 871 409) Cross-Claimant
AND:	ACN 116 149 092 PTY LTD (ACN 116 149 092) First Defendant to the Cross-Claim BARRY SCHRAPEL Second Defendant to the Cross-Claim
JUDGE:	FINN J
DATE OF ORDER:	23 AUGUST 2006
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1. The plaintiff be granted leave to discontinue the proceedings.
2. The plaintiff pay the defendant’s costs occasioned by the discontinuance including reserved costs and costs of this motion.
3. The defendant be granted leave to discontinue the cross claim.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	VID 1195 OF 2005

BETWEEN:	ACN 116 149 092 PTY LTD(ACN 116 149 092)Plaintiff
AND:	COOPERS BREWERY LTD (ACN 007 871 409)Defendant
AND BETWEEN:	COOPERS BREWERY LTD (ACN 007 871 409) Cross-Claimant
AND:	ACN 116 149 092 PTY LTD (ACN 116 149 092) First Defendant to the Cross-Claim BARRY SCHRAPEL Second Defendant to the Cross-Claim

JUDGE:	FINN J
DATE:	23 AUGUST 2006
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1 The applicant, illuminatingly named ACN 116 149 092 Pty Ltd ("ACN") seeks leave to discontinue this proceeding with no order as to costs. The respondent, Coopers Brewery Ltd ("Coopers"), while not opposing the discontinuance, seeks an order that ACN pay its costs of the discontinuance. Despite ACN’s submission that the reason for the discontinuance is that the proceedings have become futile and that it has acted reasonably, I am satisfied that this is an appropriate case for a costs order.

BACKGROUND

2 This particular proceeding was one of a number instigated by Lion Nathan Australia Pty Ltd and its sympathisers in the context of Lion Nathan Australia’s ultimately unsuccessful attempt to take over Coopers.
3 Though not itself a shareholder of Coopers, Lion Nathan Australia had, under Cooper’s Articles of Association a third ranking pre-emptive right to Coopers’ shares offered for sale. The relevant provisions in the articles, though, were revocable by virtue of Coopers’ memorandum if there was a "change in control" of Lion Nathan Australia. A "change in control" was defined to be any acquisition of a relevant interest in 40 per cent of Lion Nathan Australia’s shares. The articles further precluded a member from being interested in any business in competition with Coopers or from continuing to be a member if so interested, though it exempted Lion Nathan Australia and its related bodies corporate from this: Art 143. Finally, the articles permitted the transfer of shares by members to a "member’s relative" without activating the pre-emptive rights regime that otherwise applied to share transfers: Art 53.
4 In April 1998, Kirin Brewery acquired approximately a 45 per cent interest of the issued share capital of Lion Nathan Ltd. In March 2002, Coopers filed a summons in the Supreme Court of South Australia seeking a declaration that the effect of the acquisition operated as a "change in control" within the meaning of cl 8 of its Memorandum of Association and Article 44 of its articles. On 1 September 2005 Lion Nathan Australia announced its intended takeover bid of Coopers. On 2 September 2005, Perry ACJ determined that there had been a change in control, a decision upheld by the Full Court of the Supreme Court in October 2005.
5 On 6 September 2005, following Perry ACJ’s decision (but prior to the appeal), ACN was registered in New South Wales. Its issued share capital consists of two ordinary shares held by a trustee company. The shares in the trustee company are held by Lion Nathan Ltd. On 16 September 2005 ACN entered into an agreement with a Coopers’ shareholder, Mr Barry Schrapel, for the sale to it of some 500 Coopers shares. The agreement allowed (i) for Mr Schrapel to retain his voting rights with respect to the company and (ii) for his transfer to be effected under Article 53 of Coopers’ Articles.
6 Coopers’ directors refused to register the transfer. Armed with the favourable decision of Perry ACJ, on 21 September 2005 they gave notice of an extraordinary general meeting on 20 October 2005 to consider and approve an amendment to Coopers’ constitution removing Lion Nathan Australia’s pre-emptive and other rights.
7 On 27 September 2005 ACN commenced proceedings in the Victorian Registry of the Federal Court claiming it was entitled to be registered as a transferee of the 500 shares in Coopers from Mr Schrapel on the basis that it was a "members relative" of Mr Schrapel. It sought orders under the Corporations Act 2001 (Cth) that the transfer be registered and the register of members of Coopers be corrected.
8 At the time of commencing these proceedings, the plaintiff sought an interlocutory injunction preventing the proposed EGM from going ahead. That injunction was heard in conjunction with a similar application filed by Lion Nathan Australia in action no VID 1196 of 2005. For reasons not presently relevant, the injunction in VID 1196 of 2005 was granted but was later discharged on 18 November 2005 by Goldberg J. The interlocutory relief in this proceeding was refused. The matter was then transferred to the Adelaide Registry.
9 On 15 November 2005 Lion Nathan filed an application for special leave to appeal to the High Court of Australia from the decision of the Full Court of the Supreme Court of South Australia.
10 In late November, during a case management conference concerning two other Lion Nathan proceedings (SAD 255 of 2005 and SAD 140 of 2005), it was agreed that this proceeding would go to trial in December. The matter had been timetabled for trial in mid-October before Goldberg J. At the conclusion of the hearing in SAD 140 of 2005 counsel for the plaintiff sought an adjournment of the ACN proceedings stating that the matter would not be ready to be heard by December 2005. Ultimately, that adjournment was unopposed and the matter was not then listed for directions until 19 May 2006, during which time the parties were engaging in discussions regarding settlement options.
11 On 14 December 2005, the extraordinary general meeting was held and Coopers’ shareholders voted in favour of the proposed resolution to amend the Coopers articles. Those amendments were duly made, so removing Lion Nathan’s pre-emptive rights and preventing it from being able to purchase or to be a holder of Coopers shares.
12 On 19 May 2006 ACN sought a further adjournment until after 2 June 2006 the date listed for the special leave application in the High Court. At that time it was submitted by the plaintiff’s counsel that if Lion Nathan’s application for special leave failed, the commercial inutility of its claim would be permanent. Following the High Court’s decision dismissing the special leave application, ACN filed the present motion.

THE MOTION

13 Where leave to discontinue is sought, the Court normally will grant leave provided no injustice will be caused to the respondent/defendant: Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 at 879. As I earlier noted, Coopers does not oppose the grant of leave. It simply contests ACN’s claim that no order be made as to costs.
14 The basis of ACN’s no costs contention is that, in commencing the proceeding, it has acted reasonably and that its conduct has continued to be reasonable until the further prosecution of the litigation became futile. That futility, it is said, is evidenced by the amendments to Coopers’ articles removing Lion Nathan’s pre-emptive and exemption rights. In support of this, counsel relies on the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 143 ALR 1 to the effect that where further prosecution of proceedings becomes futile, the questions for the court are (i) whether one side or the other was almost certain to succeed or (ii) whether there had been some unreasonableness in the behaviour of one of the parties.
15 In contrast, Coopers contends that the facts demonstrate that ACN went into the litigation with knowledge of the real risk that the amendment to the articles would take place should the EGM proceed. As such, the plaintiff cannot now rely on the realisation of that risk (which has had the effect of ending the litigation) to avoid a costs order.
16 Order 22 of the Federal Court Rules, insofar as presently relevant, provides:

"2 Discontinuance -- Form 29

(1) Subject to subrules 2 and 3 a party making a claim for relief may discontinue a proceeding so far as concerns the whole or any part of any claim for relief, by notice in accordance with Form 29:

(a) at any time before the directions hearing appointed in the application -- without the leave of the Court or the consent of any other party;

(b) where after the directions hearing the proceeding continues on pleadings but the pleadings are not closed -- without the leave of the Court or the consent of any other party;

(c) where judgment has not been entered -- with the consent of all the parties; and

(d) at any time -- with the leave of the Court.

...

3 Costs

(1) A party who discontinues pursuant to paragraph 2 (1) (a) or (b) shall be liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding.

(2) A party who discontinues under paragraph 2 (1) (c) is liable to pay the costs of the other party or parties occasioned by the whole or the relevant part of the proceeding, unless the terms of the consent provide otherwise."

17 Order 62 r 26(1) in turn provides:

"(1) Where pursuant to Order 22, rule 2 a party to any proceeding discontinues the proceeding without leave as to the whole or any part of the relief claimed by him against any other party, the discontinuing party shall, unless the Court otherwise orders, pay the costs of the party against whom the discontinued claim is made occasioned by the discontinued claim and incurred before service of notice of the discontinuance."

18 It is unnecessary in this proceeding to canvass in detail the case law on discontinuance and the above rules. This has been done recently and, with respect, helpfully by Stone J in Smith v Airservices Australia [2005] FCA 997; (2005) 146 FCR 37; see also Harvey Norman Holdings Ltd v Fels [2002] ATPR 41-852; O’Neill v Mann [2000] FCA 1680. All I need note is the following.
19 (i) Order 22 does not make express provision for the incidence of costs on discontinuance with leave, the Court’s power to award costs being that general one conferred by s 43(1) of the Federal Court of Australia Act 1976 (Cth).
20 (ii) While the underlying policy in the Rules is that the discontinuing party should be liable for the other parties’ costs unless the Court otherwise orders, this has not hardened into a "usual rule" where leave is granted such as is the case where there has been a determination of a claim on its merits: as to the latter see Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151. As Stone J observed in Smith, at [44]:

"Where a claim for relief is discontinued the respondent to that claim is thereby deprived of an opportunity to vindicate its position despite, generally, having incurred costs in preparing to do so. Although the reasons for discontinuance may vary considerably, it is likely to be in the interests of justice that in those circumstances the respondent to the claim should have those costs met by the discontinuing party."

21 (iii) The reasons for, and circumstances of, a discontinuance can be so various that there are some number of factors which can be of (varying) utility in informing the Court’s discretion. These include the following:

(a) While it is not the function of the Court to make a prediction as to the outcome of the litigation concerned, the Court may nonetheless in particular circumstances feel confident that, although both parties have acted reasonably, "one party was almost certain to have succeeded if the matter had been fully tried": Ex parte Lai Qin, at 3;
(b) If one party has acted unreasonably in occasioning the need for the litigation or for the incurring of expense in it, that can entitle the other party to costs.
(c) As McHugh J observed in Ex parte Lai Qin at 3-4:
"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."
(d) A common species of futility is where a change in "objective": O’Neill v Mann at [13]; or "extrinsic": Smith at [48] circumstances renders the further prosecution of a proceeding futile.

22 As I foreshadowed, I am satisfied that an order for costs is appropriate. While it cannot be said that the institution of this proceeding was in any way unreasonable – it was one of a complex of legal manoeuvres in a hostile take over bid – it was done in the full knowledge that, consequent upon the decision of Perry ACJ, Coopers would act to alter its constitution to remove Lion Nathan Australia’s pre-emptive rights and exemptions unless either that decision was reversed on appeal or the holding of the necessary extraordinary general meeting could be prevented. Neither of these contingencies eventuated. From its inception this matter contained the seeds of its own futility, yet ACN was prepared to proceed and to put Coopers to its defence. In so doing ACN assumed the risk of the proceedings becoming futile. It cannot escape the consequences of that by the assertion that it nonetheless conducted itself reasonably. It gambled and it lost. It is entirely appropriate that it pay Coopers’ costs occasioned by the discontinued claim including reserved costs and its costs of this motion.
23 By way of consequential order, having given ACN leave to discontinue, I will also give leave to Coopers to discontinue its cross-claim but I make no order as to costs in relation to that grant of leave.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate:

Dated: 23 August 2006

Counsel for the Plaintiff/Defendants to the Cross-Claim:	Mr R D Strong

Solicitor for the Plaintiff/Defendants to the Cross-Claim:	Mallesons Stephen Jaques

Counsel for the Defendant/Cross-Claimant:	Mr D J Blight

Solicitor for the Defendant/Cross-Claimant:	Piper Alderman

Date of Hearing:	14 July 2006

Date of Judgment:	23 August 2006

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2	This particular proceeding was one of a number instigated by Lion Nathan Australia Pty Ltd and its sympathisers in the context of Lion Nathan Australia’s ultimately unsuccessful attempt to take over Coopers.
3	Though not itself a shareholder of Coopers, Lion Nathan Australia had, under Cooper’s Articles of Association a third ranking pre-emptive right to Coopers’ shares offered for sale. The relevant provisions in the articles, though, were revocable by virtue of Coopers’ memorandum if there was a "change in control" of Lion Nathan Australia. A "change in control" was defined to be any acquisition of a relevant interest in 40 per cent of Lion Nathan Australia’s shares. The articles further precluded a member from being interested in any business in competition with Coopers or from continuing to be a member if so interested, though it exempted Lion Nathan Australia and its related bodies corporate from this: Art 143. Finally, the articles permitted the transfer of shares by members to a "member’s relative" without activating the pre-emptive rights regime that otherwise applied to share transfers: Art 53.
4	In April 1998, Kirin Brewery acquired approximately a 45 per cent interest of the issued share capital of Lion Nathan Ltd. In March 2002, Coopers filed a summons in the Supreme Court of South Australia seeking a declaration that the effect of the acquisition operated as a "change in control" within the meaning of cl 8 of its Memorandum of Association and Article 44 of its articles. On 1 September 2005 Lion Nathan Australia announced its intended takeover bid of Coopers. On 2 September 2005, Perry ACJ determined that there had been a change in control, a decision upheld by the Full Court of the Supreme Court in October 2005.
5	On 6 September 2005, following Perry ACJ’s decision (but prior to the appeal), ACN was registered in New South Wales. Its issued share capital consists of two ordinary shares held by a trustee company. The shares in the trustee company are held by Lion Nathan Ltd. On 16 September 2005 ACN entered into an agreement with a Coopers’ shareholder, Mr Barry Schrapel, for the sale to it of some 500 Coopers shares. The agreement allowed (i) for Mr Schrapel to retain his voting rights with respect to the company and (ii) for his transfer to be effected under Article 53 of Coopers’ Articles.
6	Coopers’ directors refused to register the transfer. Armed with the favourable decision of Perry ACJ, on 21 September 2005 they gave notice of an extraordinary general meeting on 20 October 2005 to consider and approve an amendment to Coopers’ constitution removing Lion Nathan Australia’s pre-emptive and other rights.
7	On 27 September 2005 ACN commenced proceedings in the Victorian Registry of the Federal Court claiming it was entitled to be registered as a transferee of the 500 shares in Coopers from Mr Schrapel on the basis that it was a "members relative" of Mr Schrapel. It sought orders under the Corporations Act 2001 (Cth) that the transfer be registered and the register of members of Coopers be corrected.
8	At the time of commencing these proceedings, the plaintiff sought an interlocutory injunction preventing the proposed EGM from going ahead. That injunction was heard in conjunction with a similar application filed by Lion Nathan Australia in action no VID 1196 of 2005. For reasons not presently relevant, the injunction in VID 1196 of 2005 was granted but was later discharged on 18 November 2005 by Goldberg J. The interlocutory relief in this proceeding was refused. The matter was then transferred to the Adelaide Registry.
9	On 15 November 2005 Lion Nathan filed an application for special leave to appeal to the High Court of Australia from the decision of the Full Court of the Supreme Court of South Australia.
10	In late November, during a case management conference concerning two other Lion Nathan proceedings (SAD 255 of 2005 and SAD 140 of 2005), it was agreed that this proceeding would go to trial in December. The matter had been timetabled for trial in mid-October before Goldberg J. At the conclusion of the hearing in SAD 140 of 2005 counsel for the plaintiff sought an adjournment of the ACN proceedings stating that the matter would not be ready to be heard by December 2005. Ultimately, that adjournment was unopposed and the matter was not then listed for directions until 19 May 2006, during which time the parties were engaging in discussions regarding settlement options.
11	On 14 December 2005, the extraordinary general meeting was held and Coopers’ shareholders voted in favour of the proposed resolution to amend the Coopers articles. Those amendments were duly made, so removing Lion Nathan’s pre-emptive rights and preventing it from being able to purchase or to be a holder of Coopers shares.
12	On 19 May 2006 ACN sought a further adjournment until after 2 June 2006 the date listed for the special leave application in the High Court. At that time it was submitted by the plaintiff’s counsel that if Lion Nathan’s application for special leave failed, the commercial inutility of its claim would be permanent. Following the High Court’s decision dismissing the special leave application, ACN filed the present motion.

13	Where leave to discontinue is sought, the Court normally will grant leave provided no injustice will be caused to the respondent/defendant: Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 at 879. As I earlier noted, Coopers does not oppose the grant of leave. It simply contests ACN’s claim that no order be made as to costs.
14	The basis of ACN’s no costs contention is that, in commencing the proceeding, it has acted reasonably and that its conduct has continued to be reasonable until the further prosecution of the litigation became futile. That futility, it is said, is evidenced by the amendments to Coopers’ articles removing Lion Nathan’s pre-emptive and exemption rights. In support of this, counsel relies on the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 143 ALR 1 to the effect that where further prosecution of proceedings becomes futile, the questions for the court are (i) whether one side or the other was almost certain to succeed or (ii) whether there had been some unreasonableness in the behaviour of one of the parties.
15	In contrast, Coopers contends that the facts demonstrate that ACN went into the litigation with knowledge of the real risk that the amendment to the articles would take place should the EGM proceed. As such, the plaintiff cannot now rely on the realisation of that risk (which has had the effect of ending the litigation) to avoid a costs order.
16	Order 22 of the Federal Court Rules, insofar as presently relevant, provides:

18	It is unnecessary in this proceeding to canvass in detail the case law on discontinuance and the above rules. This has been done recently and, with respect, helpfully by Stone J in Smith v Airservices Australia [2005] FCA 997; (2005) 146 FCR 37; see also Harvey Norman Holdings Ltd v Fels [2002] ATPR 41-852; O’Neill v Mann [2000] FCA 1680. All I need note is the following.
19	(i) Order 22 does not make express provision for the incidence of costs on discontinuance with leave, the Court’s power to award costs being that general one conferred by s 43(1) of the Federal Court of Australia Act 1976 (Cth).
20	(ii) While the underlying policy in the Rules is that the discontinuing party should be liable for the other parties’ costs unless the Court otherwise orders, this has not hardened into a "usual rule" where leave is granted such as is the case where there has been a determination of a claim on its merits: as to the latter see Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151. As Stone J observed in Smith, at [44]: