In the matter of BBARC Pty Ltd

The Plaintiff, Mr Stuart Crabb originally sought leave under s 237 of the Corporations Act 2001 (Cth) (“Act”) to bring proceedings on behalf of BBARC Pty Ltd (“Company”). The day before the hearing of the matter, by email dated 8 June 2023, Mr Crabb’s solicitors advised my Associate that:

At the commencement of the hearing on 9 June 2023, at Mr Crabb’s request, I granted him leave to discontinue the proceedings, reserving the question of costs for judgment in Chambers and making directions for written submissions as to costs. Mr Crabb did not make submissions in chief within the time provided by theses directions; I did not extend that time for him to do so where that could not be done by consent; and Mr Crabb did not then make, or seek to rely on, late submissions in respect of costs. The Second and Third Defendants, F H T Nominees Pty Ltd and Billericay Nominees Pty Ltd, made submissions in respect of costs within the time provided by the Court’s directions;

Mr Crabb then purportedly made submissions in “reply”, which were not properly characterised as such and seem largely to amount to submissions in chief as to why the usual order under UCPR r 42.19 is displaced. Mr Crabb also sought to rely on two affidavits in the substantive proceedings and an affidavit of his solicitor dated 8 June 2023, which was also not properly an affidavit in reply, and addressed details of communications between Mr Crabb’s solicitors and the receivers. Rather than disregarding those submissions and those affidavits, I have had regard to them where there is no disadvantage to the Defendants in my doing so.

Mr Crabb points to the appointment of receivers and managers to the Company’s assets on 6 March 2023; submits that the receivers’ appointment frustrated his original motivation to commence the proceedings, where the receivers were not prepared to waive their interest in any potential recovery; and submits that the appointment of receivers was the kind of supervening event that justifies the Court’s exercise of its discretion not to order any costs against him. Mr Crabb submits that the receiver’s appointment, and the effect it had on the Company’s interests, resulted from another party’s conduct of the Company’s affairs while the Company was under that party’s control. The Court should not determine that question, without a hearing on the merits, in dealing with a question of costs in Chambers. Mr Crabb also submits that the receivers have “prevaricated” as to whether they would bring proceedings on behalf of the Company, which would have avoided any need for him to bring the derivative claim. For the reasons noted below, it seems to me that these matters do not displace the default position under UCPR r 42.19, where it is very likely that the proceedings would have failed in any event, even apart from the receivers’ appointment.

On 23 June 2023, the Company, by its receivers and managers, also made submissions, which were also arguably not in reply but were of limited scope. The Company consented to the third order sought by the Second and Third Defendants as to payment out of Court, which I will not make for the reasons noted below, and made no submission as to costs as between Mr Crabb and the Second and Third Defendants, where no party had sought costs against the Company and the Company did not seek costs against any other party.

Rule 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) deals with the position where proceedings are discontinued under r 12.1 of the UCPR and provides that:

I summarised the case law dealing with the application of this rule in Re Cabramatta King Tea Pty Ltd [2022] NSWSC 462 at [7]ff as follows:

I also followed that decision in Re Harmony Homes Pty Ltd [2023] NSWSC 300 at [4]ff.

The Second and Third Defendants submit, and I accept, that Mr Crabb has not established sufficient basis to displace the default position that he should pay the Second and Third Defendants’ costs following the discontinuance of the proceedings. It seems to me very likely that Mr Crabb would in any event have failed to obtain leave under s 237 of the Act at a hearing on the merits, not least because he had not offered an indemnity in favour of the Company in respect of the costs to which it would be exposed by the conduct of the proceedings, or established his capacity to satisfy such an indemnity had he offered it. The Court has repeatedly recognised the importance of an indemnity in favour of a company and the applicant’s ability to meet that indemnity, to whether derivative proceedings are in that company’s best interests for the purposes of s 237 of the Act. I summarised the relevant principles in Re Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133 at [41] as follows:

Mr Crabb’s application was always likely to fail on that basis, irrespective of the later appointment of receivers and managers to the Company’s property.

In his purported submissions in reply, Mr Crabb submits that there is a strong basis why the Court may not have required him to give an indemnity in favour of the Company, where the appropriate course would be for a substantive action to be brought in Mr Crabb’s own name, apparently to run with proceedings brought by the Company, so that Mr Crabb would be exposed to any costs order made against him. I am not persuaded by that submission. The obvious difficulties with that submission are that it is not apparent that Mr Crabb has a personal cause of action that would support that approach; he has not brought such proceedings in his own name in the several months in which he pursued an application for leave to bring a derivative action on behalf of the Company; and, as I noted above, the Court has repeatedly recognised the importance of an indemnity in favour of a company and the applicant’s ability to meet that indemnity, to whether derivative proceedings are in that company’s best interests for the purposes of s 237 of the Act. Mr Crabb submits he was prepared to offer such an indemnity at the hearing but, notably, makes no submission as to his capacity to meet a claim upon that indemnity by the Company, in the event of an order for costs against it.

The Second and Third Defendants seek indemnity costs from 6 March 2023 by reason of the fact that receivers and managers were appointed to the property of the Company on that date and submit the appointment of the receivers rendered these proceedings hopeless. They also submit that Mr Crabb could not satisfy the first requirement under s 237(2) of the Act that the Company would not have brought the proceedings, where no evidence was led of the receivers’ decision not to bring the proceedings. It may be that the Court would have inferred that the receivers would not bring the proceedings, because they had not done so and they did not suggest that they would do so. In any event, I am not satisfied that indemnity costs should be allowed on that basis. Consequently, the Second and Third Defendants alternative submission for indemnity costs from 20 March 2023, being 14 days from the date of the appointment of receivers, on the basis that that time is consistent with the 14-day notice requirement under s 237(2) of the Act, should also not be allowed.

The Third Defendant also seek an order for payment to it of certain monies paid into Court on 9 December 2022, shortly after the commencement of the proceedings. That payment into Court was made pursuant to orders made by Hammerschlag CJ in Eq on 5 December 2022, by consent and without admission, and related to the proceeds of sale of a hotel property. I will not make that order, because only costs and not the question of the status of that amount was reserved for further submissions in Chambers and Mr Crabb had no notice that such an application would be made and has not had an opportunity to respond it. The parties may be able to agree consent orders to deal with that matter between themselves, and I would likely then make those orders in Chambers. If they cannot, the Third Defendant will need to bring any application for an order for payment out of Court by Interlocutory Process filed in the usual way, in which Mr Crabb will have an opportunity to be heard.

I therefore make no order and leave UCPR r 42.19 to operate in accordance with its terms.