Fantuz v Totem Road Pty Ltd

By Summons filed on 29 May 2023, the Plaintiff, Mr Fantuz, initially sought relief under ss 247A and 1324 of the Corporations Act 2001 (Cth) (“Act”). Mr Fantuz narrowed the relief that he sought at the hearing. By Interlocutory Process filed 9 October 2023, in the nature of a cross-claim, the Defendant, Totem Road Pty Ltd ("Company") in turn sought relief seeking to require the sale of shares held by Mr Fantuz to the Company or its nominee (“Cross-Claim”). The form of relief sought by the Company was reformulated orally at the hearing.

By my judgment delivered on 1 November 2023, I made orders in accordance with the form of orders proposed by Mr Fantuz, omitting an order for the provision of audited financial reports which he no longer sought and ordered that the Interlocutory Process filed by the Company be dismissed. I also observed that:

The parties, or at least Mr Fantuz, did not accept that preliminary view and I therefore made directions to allow written submissions and the provision of a bundle of documents as to costs, with the question of costs to be determined in Chambers.

By his submissions filed on 15 November 2023, Mr Gauja, who appears for Mr Fantuz, summarised the applicable principles as follows:

I do not understand there to be any dispute as to these principles, although the parties are at odds as to their application in this case.

Mr Gauja notes the preliminary view which I expressed in my judgment, and which I have quoted above, and acknowledges that Mr Fantuz did not press his claim for audited accounts at the hearing. He points to an earlier offer made by Mr Fantuz to settle the matter on the basis that the prayer for audited accounts was not pressed and submits that the non-acceptance of that offer is relevant to the exercise of the Court’s discretion. Mr Gauja also submits that the application for the audited accounts was of narrow scope. I do not altogether accept that submission, where that application prompted the Company to seek leave to amend its Cross-Claim to allege that, inter alia, the application for audited accounts was oppressive in the circumstances. While the Company was not granted leave to file the amended Cross-Claim,, it would have been entitled to raise the same issues in defence had Mr Fantuz’s application for audited accounts been pressed.

Mr Gauja also points to the fact that, although the issue as to access to documents under s 247A of the Act had narrowed at the hearing, the Company opposed the relief that Mr Fantuz sought until shortly before the hearing, and contended that Mr Fantuz had an improper purpose in pursuing the claim for access to documents and that he was not acting in good faith because he had not proceeded with earlier negotiations regarding a sale of his shares. Mr Gauja also points to evidence led by the Company, to which Mr Fantuz responded, relating to the circumstances in which his employment had ceased. Both parties’ evidence in that respect was of limited relevance, although I accept that the Company was the first of the parties to open that issue. Mr Gauja also points to the fact that the Company was unsuccessful in its Cross-Claim seeking an order that it be permitted to buy out Mr Fantuz’s shares in the Company at a price to be determined by a valuer. Mr Gauja submits that, in these circumstances, an order that each party pay its own costs would not reflect the extent of the success achieved by Mr Fantuz in the application, and that this is not a case where the issues are so evenly balanced that the justice of the case is that there be no order as to costs. Mr Gauja submits, in the circumstances, that the result is best reflected by an order that the Company pay 80% of Mr Fantuz’s costs of the proceedings.

By her submissions also dated 15 November 2023, Ms Lim, who appears for the Company, refers to the principles applicable to an order for indemnity costs. In submissions in reply, Mr Gauja responds that Mr Fantuz’s conduct of the proceedings does not support an entitlement to indemnity costs on the Company’s part. He also submits, and I accept, that Mr Fantuz’s application for access to the Company’s books to prepare a proper valuation of his shares did not involve an improper purpose and, in any event, that matter would not establish any element of impropriety or unreasonable conduct in respect of Mr Fantuz’s conduct of the proceedings. It seems to me that no basis for an order for indemnity costs in favour of the Company could be established here, for the reasons noted below.

The Company complains of the fact that the proceedings were commenced in the Equity General List, and then transferred to the Corporations List, which seems to me a matter of little or no significance. Ms Lim also contends that the scope of the orders for access to documents originally sought by Mr Fantuz were too wide and submits that, once Mr Fantuz narrowed the categories of books sought to those relevant to a valuation of his shares, the Company offered to provide access to them in the terms later ordered by the Court. Mr Gauja responds by reference to decisions, including United Rural Enterprises v Lopmand [2003] NSWSC 405, where orders for access to documents have been made in wider terms. Mr Gauja also submits, and I accept, that the subsequent narrowing of the application does not support an order for indemnity costs, where that is proper rather than unreasonable conduct on the part of both parties.

Both parties refer to offers which they had made prior to the proceedings, which took different positions as to costs and as to the scope of documents to which access could be permitted. It seems to me that nothing turns on those offers, where the parties further developed their positions in the course of the hearing and any compromise between the parties as to access to documents was made more difficult by the Company’s Cross-Claim seeking to require Mr Fantuz to sell his shares. Ms Lim also submits that Mr Fantuz did not lead evidence relating to the Company’s Cross-Claim or make extensive submissions as to the Cross-Claim and that the costs of the Cross-Claim would represent a small part of the costs of the proceedings. I am not persuaded by that submission, which is undermined by the fact that I did not need to hear Mr Gauja in respect of the Company’s Cross-Claim.

Ms Lim submits that the appropriate order as to costs is that Mr Fantuz pay the Company’s costs on an indemnity basis up to 8 October 2023 and Mr Fantuz pay 65% of the Company’s costs on an indemnity basis from 9 October 2023. I am satisfied that there is no basis to make an order for costs of that character, which would plainly not reflect the extent of Mr Fantuz’s success in the proceedings.

On balance, it seems to me that the order that I had foreshadowed at the conclusion of the hearing on 1 November 2023 is broadly appropriate, with one modification. There was a mixed result in the proceedings, where the categories of documents to be produced were narrowed by correspondence between the parties over time, and Mr Fantuz abandoned his claim for audited accounts to be produced, but was successful in obtaining a narrow order for access to documents so as to progress a valuation of his shares in the Company. I remain of the view that this is a proper case for no order as to costs as to Mr Fantuz’s primary claim, given the mixed result in that claim. However, Mr Fantuz was wholly successful, and the Company was wholly unsuccessful, in its Cross-Claim, and it cannot be assumed that the costs of that Cross-Claim were so limited as Ms Lim contends. On that basis, I will order that the Company pay Mr Fantuz’s costs of the Cross-Claim, as agreed or as assessed. I am inclined to think that, as I noted in my principal judgment, the costs of an assessment on that basis may still not be warranted by the result, but there is no reason not to leave Mr Fantuz to assume that risk if he wishes to do so. There should be no order as to the costs of this costs application, which has also led to a mixed result.

Accordingly, I make the following orders: