Mallina Holdings Ltd v Biala Pty Ltd & Anor [1997] FCA 32 (4 February 1997)

C A T C H W O R D S

PRACTICE AND PROCEDURE - Costs - application to confirm proposed issue of shares at a discount - application opposed by three shareholders - two of those shareholders were made respondents to the proceedings - application successful subject to certain conditions - how costs of the proceedings should be borne - no matter of general principle.

MALLINA HOLDINGS LIMITED v. BIALA PTY LTD and

T.S. HOLDINGS PTY LTD

No. WAG 3041 of 1996

CARR J

PERTH

4 FEBRUARY 1997

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 3041 of 1996

GENERAL DIVISION )

B E T W E E N : MALLINA HOLDINGS LIMITED

ACN 008 720 965

Applicant

and

BIALA PTY LTD and T.S. HOLDINGS

PTY LTD

Respondents

CORAM: CARR J.

PLACE: PERTH

DATE: 4 FEBRUARY 1997

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The applicant is to bear its own costs in respect of the application to and including 15 November 1996.

2. In relation to the costs of the application other than those referred to above:

(a) the respondents shall pay the applicant's costs; and

(b) the respondents shall pay one-third of the costs of the intervenor Hudson Corporate Pty Ltd.

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

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 3041 of 1996

GENERAL DIVISION )

B E T W E E N : MALLINA HOLDINGS LIMITED

ACN 008 720 965

Applicant

and

BIALA PTY LTD and T.S. HOLDINGS

PTY LTD

Respondents

CORAM: CARR J.

PLACE: PERTH

DATE: 4 FEBRUARY 1997

COSTS

On 24 December 1996 I published reasons for judgment in this matter and made orders that the applicant bring in a minute of orders to reflect those reasons. The reasons foreshadowed that the Court would, under s.190 of the Corporations Law confirm a proposed issue of shares by the applicant at a discount as authorised by a resolution of a general meeting of the applicant held on 14 November 1996. The confirmation was subject to conditions relating to the period within which the shares must be issued [see s.190(2)(c)], a disclosure of full particulars of the issue in the event that the applicant made any further share issues during the ensuing five years and a requirement that existing shareholders be given two rounds of entitlement in the proposed issue. I reserved the matter of costs and gave the parties and the two intervenors leave to file and serve written submissions on that matter, being both primary submissions and submissions in reply. Each party and intervenor has filed submissions on the matter of costs. These reasons deal with how the costs of the application should be borne. They should be read with my reasons for judgment delivered on 24 December 1996 which I hereby incorporate by reference. I also use the same abbreviations here as were used in those reasons to refer to the various parties.

I propose to deal first with a preliminary matter relating to costs. Even if the application had been unopposed, the applicant would have been put to the costs of the application up to and including a point of time which I identify as being 15 November 1996. That was the day upon which the hearing of the application would have proceeded had not Biala and TS filed notice of intention to appear some two days previously and in fact appeared on 15 November 1996. On 15 November 1996 TDS filed notice of intention to appear and was given leave to intervene. I think it is fair to say that had it not been for the steps taken by Biala, TS and TDS the application would have been granted on 15 November 1996. I had examined the various affidavits and some fairly detailed submissions filed before the directions hearing on 8 November 1996. Accordingly I consider that the applicant should bear and pay its own costs to and including 15 November 1996. There will be an order to that effect.

I now turn to who should bear the costs thereafter including the costs of a hearing which occupied three full days.

It is convenient first to refer to the position of TDS. No party has sought an order for costs against TDS. The other intervenor has not sought any such order either. TDS seeks no costs against any person, nor would one have expected it to do so. In these circumstances there will be no order for costs either for or against TDS.

The applicant submits that ordinarily costs follow the event and that it, as the successful litigant should receive its costs. It says that there are no special circumstances justifying some other order.

The respondents submit that no order for costs should be made. They say that s.190 of the Corporations Law gives the right to any party to object to the Court confirming a resolution passed by the shareholders at a general meeting. The respondents contend that at that meeting shareholders were given information which was not included in documentation sent to shareholders prior to the meeting. The respondents contend that the information given at the meeting was found to be untrue and that it was appropriate for them to challenge the application for confirmation of the authorisation. The respondents say further that their opposition was "concise and relevant" and their case was presented in 5.92 hours. The respondents contend that as a result of their opposition the applicant conceded the need for a supplementary prospectus in relation at least to the construction time for the plant which is to be financed partly out of the funds to be raised by the share issue. The respondents also rely on other conditions attached to the confirmation. Finally, the respondents say that if an order for costs is to be made in favour of the applicant then it should be limited to the consideration of the evidence of Mr Justin Willis and affidavits filed by the applicant in response to Mr Willis' affidavit.

On the first day of the hearing I gave leave to the Underwriter to intervene. The Underwriter seeks an order for costs against the respondents. The respondents oppose such an order. They say that their senior counsel made it clear that it was unnecessary for the Underwriter to intervene. They give other reasons (see paragraphs 2.2 to 2.5 of their written submissions and the nine paragraphs of their submissions in reply to the Underwriter's submissions) which I have considered but which it is not necessary for me to set out in detail.

The Underwriter not only sought an order for payment of its costs, but that those costs should be on an indemnity basis. I should interpolate here that the Underwriter had leave to intervene in the application on a fairly limited basis. In essence, the Underwriter's intervention was limited to rebutting certain allegations made against it. In their particulars of objections, the respondents contended that "The entire scheme, namely the rights issue with an underwriting, will prejudice all shareholders except [the Underwriter]. See the Financial Report". The Financial Report was prepared by Mr Willis who (at paragraph 7 of his report) concluded that there were reasonable grounds to believe that the Underwriter may be receiving a benefit relative to other shareholders as a result of the amount of the underwriting fee, by subscribing for shares not taken up, and because the Underwriter may have had access to information concerning potential future profitability that had not been disclosed to other shareholders. The respondents, in their preliminary submissions dated 14 November 1996, also made similar submissions about the Underwriter and went further to suggest that the underwriting agreement might confer a financial benefit on the Underwriter in breach of s.243H of the Corporations Law. In reply, the respondents say that the Underwriter's intervention was not warranted and that any intervention could have been handled more economically (I paraphrase paragraph 6 of the respondents' submissions filed 21 January 1997). Furthermore, for the reasons given in those submissions, the respondents say that there were no exceptional circumstances which would justify an order for costs in favour of the Underwriter against the respondents on an indemnity basis.

The manner in which a court proceeds to exercise its discretion on the question of costs was conveniently summarised by Toohey J in Hughes v. Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at p.48,136 as follows: (I omit citations)

"(1) Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.

(2) Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.

(3) A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law."

In Dodds Family Investments Pty Ltd v. Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at pp.271-272 the Full Court of this Court observed:

"The propositions enunciated in that case [Toohey J's decision in Hughes] are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case - Cretazzo v. Lombardi (1975) 13 SASR 4 at 12. In Trade Practices Commission v. Nicholas Enterprises Pty Ltd (1979) 42 FLR 213, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of a trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs."

I acknowledge that the respondents had a statutory right to object to the application. They did so and, by consent, became respondents to the proceedings. I further acknowledge that, to some extent, their participation in the proceedings was reflected in two of the conditions imposed upon the confirmation.

Nevertheless, consistent with the guidelines reflected in the above authorities, I consider that in this matter the applicant's costs of and incidental to the hearing incurred after 15 November 1996 (including the reasonable costs incurred by the applicant in obtaining an expert's report) should be borne by the respondents. I am fortified in that conclusion by the orders made by Seaman J in Re Mallina Holdings Ltd (1990) 8 ACLC 281. In that case, where I think it is fair to say that Biala and TS achieved a greater degree of success in relation to the conditions imposed than in this matter, Seaman J ordered that nonetheless they pay the applicant's costs. I do not think that the respondents in this matter had sufficient success to warrant any reduction in what would otherwise normally be the applicant's entitlement to costs. Nor do I not think it is appropriate to engage in a mathematical exercise suggested by paragraphs 1.4 and 1.7 of the respondents' submissions.

I now turn to the Underwriter's claim for costs. I respectfully agree with the conclusion of Spender J in O'Keefe Nominees Pty Ltd v. BP Australia Ltd; Trade Practices Commission (Intervener) [1995] FCA 1079; (1995) 128 ALR 718 that this Court has a discretion under s.43 of the Federal Court of Australia Act 1976 (Cth) to make an order for costs in favour of an intervenor.

Given the seriousness of the allegations made against the Underwriter, I consider that it was appropriate for the Underwriter to intervene in the proceedings. However, I do not think that it was necessary for the Underwriter to have counsel present for three days. I think it was reasonable for the Underwriter to be represented separately from the applicant. Nevertheless the Underwriter's participation in the proceedings was relatively small. There was very little cross-examination and only a short oral address and written submissions. I accept that this may, in part, have resulted from the fact that no evidence emerged to support the allegations made against the Underwriter. I think that some effort should have been made for the Underwriter's intervention to be interposed at a mutually convenient time and that it was really not necessary for counsel to be in Court for the whole period of three days. I consider that an appropriate order is that the respondents should pay one-third of the Underwriter's costs. I do not consider that the circumstances which gave rise to the Underwriter's intervention were sufficiently exceptional for those costs to be taxed on an indemnity basis. There will be an order accordingly.

I certify that this and the preceding seven

(7) pages are a true copy of the Reasons for

Judgment of Justice Carr on the matter of costs

in this application.

Associate:

Date:

Counsel for the Applicant: Mr P I Jooste

Solicitors for the Applicant: Hely Edgar

Counsel for the Respondents: Mr A.C.Archibald QC

Solicitors for the Respondent: Alan Mizen

Mr P.B.Rakich appeared, by leave, for the intervnor TDS Investments Pty Ltd

Counsel for Hudson Corporate Pty Ltd, intervening by leave: Mr D.P.Mohen

Solicitors for Hudson Corporate Pty Ltd: Atanaskovic Hartnell

Date of Judgment: 4 February 1997