Supreme Court Issues Costs Orders for Call Option Dispute

The Court issued costs orders in a dispute over the exercise and consideration payable under a call option agreement between joint venture parties. The defendant was ordered to pay the plaintiff's costs of the reference on an ordinary basis due to unreasonable conduct.

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY] v [COMPANY] & Anor [2016] NSWSC 134 Hearing dates: 6 November 2015 Date of orders: 26 February 2016 Decision date: 26 February 2016 Jurisdiction: Equity Before: [NAME]: The first defendant/cross claimant is to pay the plaintiff's costs of the reference. Those costs will be payable on the ordinary basis and will include the costs of the proceedings associated with the reference. Otherwise each party shall bear its own costs of the proceedings. These costs orders include the costs of the argument. Catchwords: COSTS – Claim for specific performance of a call option granting the option to acquire shares in a quarrying company – Cross Claim for construction of the call option and claim for an injunction restraining a call upon security over the quarrying company's assets - proceedings resolved by consent without agreement as to final costs orders - disagreement about the consideration payable upon the exercise of the call option – reference out to a referee to determine the amount of the consideration – referee finds that the plaintiff's claim for the amount of consideration payable by the [NAME] is almost wholly justified – principles for the assessment of costs, where parties have agreed upon the outcome of the proceedings – whether one or other party was certain to succeed – whether the plaintiff was successful on the outcome of the reference – whether one or both parties conducted themselves reasonably. Legislation Cited: Uniform Civil Procedure Rules 2005, rr 42.19, 42.20 Cases Cited: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194; (1993) 116 ALR 523 [COMPANY] v [NAME] [COMPANY] [2009] NSWCA 32 [NAME] [COMPANY] v Stack [2003] NSWCA 302 Fordyce v Fordham (2006) 67 NSWLR 497 Harrison v Schipp (2002) 54 NSWLR 738 [NAME] v Bao San [2010] NSWSC 809 Re Minister for Immigration & Ethnic Affairs; Ex parte [NAME] [NAME] [1997] HCA 6; (1997) 186 CLR 622 [COMPANY] v [NAME] of Taxation (2000) 101 FCR 548 [NAME] v Richmond River Council (1998) 193 CLR 72 Waarde v Dixon (1858) 28 LJ Ch 315 Walton v McBride (1995) 36 NSWLR 440 Category: Costs Parties: First Plaintiff: [redacted] First Defendant: [redacted] Second Defendant: [redacted] Counsel: [redacted]

Solicitors: [redacted] Defendants/cross-claimant: [redacted] Publication restriction: No

Judgment 1. The plaintiff, [RESPONDENT] ("[NAME]") and the first defendant, [RESPONDENT] ("[NAME]") are both shareholders in the second defendant, [RESPONDENT] ("[NAME]"). [NAME] and [NAME] actively contested the proceedings. [NAME] entered a submitting appearance.

2. The proceedings are partially settled but for the question of costs. [NAME] and [NAME] have reached a consensus to end their hostilities but they cannot agree upon costs. They have asked the Court to resolve that issue. [ADDRESS] has well established jurisdiction to make orders for costs even in circumstances where proceedings have settled, which the parties here seek to invoke: Re Minister for Immigration & Ethnic Affairs; Ex parte [NAME] [1997] HCA 6; (1997) 186 CLR 622 at 624-5; 143 ALR 1 ("[NAME]") and Australian Securities Commission v Aust-Home Investments Limited [1993] FCA 585; (1993) 44 FCR 194 at 201; (1993) 116 ALR 523 ("[COMPANY]").

3. The proceedings relate to the exercise by [NAME] of an option to repurchase 10 ordinary shares in [NAME] that it had previously transferred to [NAME]. [NAME] executed and delivered a form of exercise of the option on 27 June 2014. The parties' disputes principally related to whether the call option had been validly exercised, and if validly exercised upon what terms and for what consideration.

An Overview of the Proceedings - November 2013 to November 2015 1. A little more background is required to understand the issues. [NAME] and [NAME] signed a Call Option Deed on 27 November 2013. This Deed granted to [NAME] the right to call for the purchase of 10 of the 20 issued ordinary shares issued in [NAME]. The Call Option was part of the November 2013 re-structuring of the interests of [NAME] and [NAME] in [NAME]. [NAME] and [NAME] had been shareholders in [NAME] since mid-2012. [NAME] was incorporated as a joint venture vehicle to quarry a sand deposit in the [NAME] region of the New South Wales Southern Tablelands. [NAME] and [NAME] agreed that they would each contribute equally to the capital of the joint venture. But by October 2013 [NAME] had contributed less than [NAME]. The parties continued negotiations in the face of unresolved demands by [NAME] to [NAME] to contribute its equal share of capital with [NAME].

2. On 27 November 2013 [NAME] and [NAME]'s negotiations led to the signing of the Call Option Deed between [NAME], [NAME] and [NAME] under which [NAME] granted [NAME] an option to purchase 50 per cent of the capital of [NAME] on issue of the date of exercise of the option at an exercise price of $1 per option share. The Call Option required [NAME] as a condition of its exercise to equalise its contributions to the capital of [NAME] when completing the exercise of the Call Option.

3. Thus the Call Option structure allowed [NAME] a short period of grace of seven months, between late November 2013 and 30 June 2014, to require its share of the joint venture but on terms that it would honour its side of the joint venture's funding arrangements.

4. By the time the Call Option Deed was signed, [NAME] had transferred its 50 per cent (or 10 shares) in the capital of [NAME] to [NAME]. For a period of 17 months from the time of [NAME]'s exercise of the Call Option in June 2014 until the hearing in November 2015, the parties were engaged in a number of disputes: Summons and Cross Summons proceedings, interlocutory skirmishes and a reference out to an expert before they were in a position in July 2015 to discontinue their respective Summons and Cross Summons, subject to the Court's determination of the costs issues. Those various procedural contests have generated substantial legal costs on both sides which have no doubt contributed to the parties' inability now to resolve costs issues between them, even though there is a consensus about the outcome of the proceedings.

5. The relevant authorities stressed that in exercising this jurisdiction the Court should not undertake a hypothetical trial of the litigation that has been settled: [NAME] per McHugh J at 624 and [COMPANY] per Hill J at 201. But not surprisingly, judges called upon to exercise this jurisdiction have expressly recognised the rather unpalatable truth that it may be necessary to analyse much of the evidence in the proceedings in order to determine an appropriate costs order: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497 ("Fordyce") at [67] per McColl JA. In order to do justice to the issues raised by the parties in these particular proceedings it has been necessary to undertake quite detailed analysis of what was in contest between them. To facilitate that analysis a short overview of the major procedural steps between June 2014 and November 2015 is useful. Following this overview, these reasons summarise the issues deployed on each side and then embark on a move detailed analysis of the contest.

6. The Call Option was exercised on 27 June 2014. [NAME] did not commence these proceedings by Summons until 14 November 2014. In the meantime the parties engaged in correspondence about the validity of the notice of the exercise of the Call Option (the Exercise Notice); a principal issue being whether Mr [NAME] who purported to sign the Exercise Notice did so with [NAME]'s authority. [NAME] 14 November 2014 Summons alternatively sought relief that were the Call Option properly exercised [NAME] was required by the Call Option to contribute to 50 per cent of the shareholder loans (the Share Loans) by then advanced by [NAME] to [NAME], namely the sum of $527,687.21.

7. On 2 December 2014 [NAME] filed an application for summary judgment. But this application was dismissed by consent on 19 December 2014. Between the filing of the Summons on 14 November 2014 and 1 March 2015 [NAME] had sought orders (in paragraph 5 of the Summons) requiring as part of the completion of the contract under the exercise of the option that [NAME] pay a sum calculated by reference to certain loan advances [NAME] had made to [NAME] over a period up to the date of the filing of the Summons, 14 November 2014.

8. On 2 March 2015 [NAME] filed an Amended Summons. The original Summons had sought in prayers 1 to 4 declarations that the first defendant had failed to validly exercise the option due to Mr [NAME] want of authority. The Amended Summons on 2 March abandoned this claim.

9. Also on 11 February 2015 [NAME] gave notice of a proposed claim in its Summons that the payment due from [NAME] to [NAME] upon the exercise of the option should be calculated by reference to advances made as late as 31 January 2015. But after correspondence from [NAME]'s solicitors that this claim was excessive, the claim was abandoned on 2 March 2015 and was reduced to encompass loan advances only up to 27 July 2014, being 30 days after the exercise of the option.

10. Between 2 March and 27 March 2015 the parties engaged in a dispute as to whether [NAME] was entitled to the benefit of certain securities over [NAME]'s property to support loans that [NAME] had made to [NAME]. [NAME] contention was met with a Cross Summons served by [NAME] on 23 March 2015 seeking to enforce these loan securities and delivery up for cancellation of the loan agreements and the securities. This Cross Summons was supported by a motion to restrain [NAME] from enforcing the loan agreement and securities. This aspect of the parties' dispute was resolved by consent orders on 27 March 2015, which noted [NAME] conditional undertaking not to enforce the loan agreement or the securities before 31 May 2015.

11. Also on 27 March 2015 the parties agreed to refer out to Dr [NAME], as referee, their dispute about the quantum of the loans that [NAME] had advanced to [NAME], which quantum would in turn define the extent of [NAME]'s obligation to contribute to 50 per cent of the burden of these loans. Dr [NAME] then entered upon the Reference. The Reference delivered an interim report on 4 May 2015 and a final report on 21 May 2015.

12. But in the meantime [NAME] issued a notice to complete the contract created by [NAME]'s exercise of the Call Option. On 23 May 2015 when the reference was underway, [NAME] issued a Notice to Complete to [NAME] alleging that [NAME] was in default of the contract and requiring completion before 3pm on 1 June 2015. This procedural skirmish terminated on 25 May 2015 when [NAME] undertook to the Court not to terminate the Option Deed pursuant to the Notice to Complete prior to 2 June 2015.

13. After the conclusion of the Reference completion under the Call Option Deed occurred on 1 June 2015.

14. The course of the proceedings before the referee between 1 April and 21 May 2015 were the subject of detailed submissions between the parties in these proceedings. [NAME] contended on this costs argument that in the [NAME] had put [NAME] to proof of the quantum of the alleged loans to [NAME] when [NAME] knew that the advancing of the loans in the sum being claimed was not genuinely in issue. 15. [NAME] also cites in support of its contentions for [NAME] to pay the costs of the reference the result of the reference: [NAME] claimed in the reference that the proper value of its shareholder loans to [NAME] was $987,511 plus interest. Dr [NAME] concluded on the reference that the value of the loans before interest was $985,045.42 plus interest. He also determined that the amount of interest at that stage was $65,649.23. [NAME] submits that the amount found in its favour in the reference was only $1,232.79 less than the amounts sought in the Amended Summons, an adjustment of only 0.25 per cent from the amount claimed. In the end, the amount payable by [NAME] together with interest was $525,347.32. On completion on 1 June 2015 of the share purchase contract resulting from the exercise of the [NAME] paid $525,347.32 to [NAME], the amount as determined by Dr [NAME]. [NAME] says that [NAME] could not have completed by paying this sum, without accepting the validity of Dr [NAME] conclusion.

16. In summary therefore the parties' procedural contest can be conveniently divided into the following phases: 1. 27 November 2013 to 27 June 2014: [NAME] and the Call Option; 2. 27 June 2014 – 14 November 2014: from exercise of the Call Option to [NAME]'s commencement of proceedings; 3. 14 November 2014 – 1 March 2015: the period of shareholder loans claimed and the summary judgment application; 4. 2 March 2015 – 22 May 2015: [NAME] as a secured creditor and the reference; 5. 23 April 2015 – 1 June 2015: [NAME] to complete and completion.

The Issues for Determination 1. There are wide differences between the parties' positions on cost. [NAME] seeks an order that [NAME] pay [NAME]'s costs of the proceedings, including the reference, on the indemnity basis. [NAME]'s principal submissions are in substance that it either was or would have been successful in the proceedings and also that [NAME] behaved unreasonably in its conduct of the litigation. 2. [NAME] submits that the only aspect of the case in which [NAME] can point to any degree of success is the reference and that success on the reference does not justify a costs order in [NAME] favour. [NAME] submits that there should be no order as to costs either on [NAME] or [NAME]'s Cross Summons. But [NAME] submits in the alternative that if the Court is minded to make a costs order, contrary to its principal submissions, then an order for costs on the ordinary basis should be made in [NAME]'s favour in respect of all aspects of the proceedings, apart from the reference.

3. The parties contentions raised the following issues for determination:

1. Whether one or other party has acted so unreasonably that the other party should obtain the cost of the action;

2. Even if both parties have acted reasonably whether the Court can be confident that one or other party was almost certain to have succeeded if the matter had been fully tried, thereby warranting an order for costs in that parties' failure; and 3. Whether in the circumstances if a costs order is to be made that costs should be awarded on the indemnity basis rather than the ordinary basis.

Applicable Principles - Orders for Costs when the Result is Agreed 1. The applicable legal principles may be shortly stated. The relevant principles in the area have been comprehensively gathered and stated by Hallen AsJ (as his Honour then was) in [NAME] v Bao San [2010] NSWSC 809. The exercise of the Court's discretion to make an order for costs when the parties either have consented to a grant of final relief or have otherwise agreed upon the outcome of the proceedings is informed by principles stated in two leading cases. The first is Hill J's statement in [COMPANY], at 530: "(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order … (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation … (5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted … [Footnotes omitted]".

1. The second is McHugh J's statement in [NAME], at 3: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … 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. [Footnotes omitted]".

1. Each party now submits that it is entitled to an order for costs against the other, although [NAME]'s primary submission is that there should be no order as to the costs of the proceedings. Each party alleges the other has acted unreasonably and/or that had there been no agreement about the form of final relief that it would nevertheless have succeeded on aspects of the proceedings. The parties cannot both be right. But they could each fail to make good their contentions.

2. Added to these authorities is the effect of Uniform Civil Procedure Rules 2005 ("UCPR"), rr 42.19 and 42.20 which stipulate the default position where proceedings are dismissed or discontinued which is what in substance has occurred here. These rules provide in the case of discontinuance (UCPR, r 42.19) and dismissal (UCPR, r 42.20). But Fordyce (at [84]) holds that rr 42.19 and 42.20 do not create a presumption of the payment of costs but are relevant although not determinative of the costs discretion, as is [NAME] (Fordyce at [87]).

3. It can be important to distinguish between, on the one hand, cases in which one party after litigating for some time effectively surrenders to the other party, and, on the other hand, cases where a supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except as to costs. In the former type of case there will commonly be lacking any basis for the exercise of the Court's discretion otherwise by an award of costs for the successful party. But the latter kind of case usually creates problems in assessing the costs outcome and there may be difficulty discerning a clear reason why one party rather than the other should bear the costs: [COMPANY] v [NAME] of Taxation [2000] FCA 270; (2000) 101 FCR 548 at 553, cited with approval in [NAME] [COMPANY] v Stack [2003] NSWCA 302 at [5]. The distinction between the two categories is often helpful in exercising the costs discretion although neither category can be precisely defined, the boundary between them can be unclear and other factors may be relevant: [COMPANY] v [NAME] [COMPANY] [2009] NSWCA 32 per Basten JA at [79] – [81].

[NAME] and [NAME] 2013 to November 2015

(a) [NAME] and the Call Option 1. A number of the directors and officers of [NAME], [NAME] and [NAME] feature in the narrative of events including these parties. Mr [NAME] who was at all relevant times the company secretary of [NAME], which company is part of a larger group of investment companies, is also a director of [NAME], together with Mr [NAME]. Mr [NAME] has at all relevant times been a director of and the company secretary of [NAME]. 2. [NAME] was a joint venture vehicle incorporated in 2012 to develop a sand deposit through the development of a sand quarry on land located at [NAME] in the New South Wales Southern Tablelands. The land was leased by [NAME] from its registered proprietor for the purposes of conducting the quarry activity. Until the events of November 2013 the directors of [NAME] were [NAME] (representing [NAME]) and [NAME] (representing [NAME]). [NAME] was, and is, [NAME]'s company secretary.

3. Each of [NAME] and [NAME] agreed to contribute equally to the joint venture. But [NAME] contributed less than [NAME]. On 10 October 2013 [NAME] sent a letter of demand to the directors of [NAME] (and to the directors of [NAME] the following day) advising that by that time [NAME] had loaned $428,568.73 to [NAME] while to that point [NAME] had loaned only $153,344.08. [NAME] did not make additional contributions to [NAME].

4. But negotiations about the Capital Structure of [NAME] resulted in the execution of the Call Option, under which [NAME] granted [NAME] an option to purchase 50 per cent of the capital of [NAME] on issue at the date of the exercise of the option at an exercise price of $1 per option share, which option was to be exercised by 5pm on 30 June 2014. A condition of the exercise was that [NAME] was to equalise any loans from the shareholders to [NAME], the obligation that [NAME] had conspicuously failed to fulfil up to that point.

5. The precise terms of the Call Option are not in dispute and do not need to be reproduced in full in these reasons.

6. The following is a sufficient summary. The Call Option was granted for an option fee of $10 (clause 2). The Call Option could be exercised if and only if the grantee [NAME] gave written notice of the exercise of the option during the exercise period, which was to expire at 5pm on 30 June 2014 (clause 3). Upon the valid exercise of the option, within 30 days of giving the applicable exercise notice, the grantee and grantor were required to effect purchase and transfer of shares in accordance with clause 4.1, as follows: "4.1 Purchase and transfer If the Option is validly exercised under clause 3, within 30 days of the giving of the applicable Exercise Notice: (a) the Grantor must deliver to the Grantee: (i) a duly executed transfer; (ii) a discharge in registrable form of any encumbrance; and (iii) the share certificate, in respect of the Option Shares for which the Grantee has exercised the Option; (b) the Grantee must: (i) pay to the Grantor the Exercise Price; and (ii) accept the transfer, In respect of the Option Shares for which the Grantee has exercised the Option; (c) the Grantee must lend to the Company the amount calculated by the following formula: L = SLxN + TN where: L is the amount to be lend by the Grantee to the Company; SL is the aggregate of all Shareholder Loans at that time (including interest calculated in accordance with the definition of Shareholder Loan contained in clause 1,1); N is the number of Option Shares for which the Grantee has exercised the Option; TN is the total number of shares in the Company at that time; and The loan is otherwise on the same terms as the Shareholder Loan; and (d) the Company must use the amount lent by the Grantee to the Company under clause 4.1(c) to partially repay the Shareholder Loan. 4.2 Completion Completion of the parties' respective obligations under clause 4.1 is interdependent. No party will be obliged to perform their respective obligations unless all such obligations are performed at the same time."

1. A "Shareholder Loan" was defined under clause 1.1 of the Agreement to mean all loans, advances or other financial accommodation of any nature given to or for the benefit of the company by [NAME] or any related entity of [NAME]. Other provisions in the Call Option provided for the restructuring of [NAME] (clause 6) and prohibited assignment (clause 8).

2. Between November 2013 and February 2014 [NAME] caused [NAME] to repay the entire loan account [NAME] had held with [NAME] as at the date of the Call Option, namely $153,344.08. Thus by February 2014 [NAME] owed no money to [NAME]. [NAME] had advanced monies on its own loan account to [NAME] and from time to time been repaid by [NAME]. These were cash advances to [NAME]'s bank account, the direct payment of [NAME] suppliers, and payments to effect the previously described reimbursement of funds that [NAME] had loaned to [NAME]. On 6 December 2013 [NAME] transferred its 50 per cent shareholding in [NAME] to [NAME] which then became the sole shareholder in [NAME].

3. The owner of the quarry did not complete its lease to [NAME] until 30 January 2014. But once that lease was in place [NAME] prepared to further capitalise [NAME] for development of the quarry by executing a group of loan and security agreements on 8 April 2014. There were three of these loan and security agreements: the first was a loan agreement pursuant to which [NAME] agreed to provide a $1 million loan facility to [NAME] for working capital, the second was a deed of charge securing all the advances [NAME] had made to [NAME] under the April 2014 loan agreement and the third was a mortgage of the lease of the quarry to secure monies owing by [NAME] to [NAME].

4. It was in this context that [NAME] exercised the option.

(b) 27 June 2014 – 14 November 2014: from exercise of the Call Option to [NAME]'s commencement of proceedings 1. On Friday 27 June 2014 at 4.57pm Mr [NAME] of [NAME] sent an email to [NAME]'s secretary and directors, copied to "[NAME]" at the [NAME] email address, with the subject "[COMPANY]". The email was as follows: "Hi [NAME], This is to advise that in accordance with 3.1 of the options Call Options Deed, [COMPANY] wishes to exercise their options available being within the exercise period ending 301h June 2014. In accordance with clause 4.1 (b) [COMPANY] will ensure payment of the exercise price is made within 30 days after the end of the exercise period and will also ensure that funds are loaned to the grantee to recognise the original shareholder loan outstanding and interest that has accrued to date. Please ensure details pertaining to the shareholders loan and the interest calculations are promptly provided with supporting documentation With respect to the above we look forward to the Grantor delivering a duly executed transfer, discharge in registrable form of any encumbrance and provide the share certificate. Kind Regards, [NAME] - B.Bus (Accy) Dip. Prof (Accy) FIPA Partner"

1. At the time of sending this email Mr [NAME] was not a director of [NAME]. The email itself provides no evidence he had been appointed an agent of [NAME] for the purposes of exercising the option. It can be inferred from the form of the email that Mr [NAME] was an accountant who provided accounting services to [NAME]. He was purporting to copy someone from [NAME] in on the exercise of the Call Option. That person's first name coincided with the name of one of [NAME]'s directors, Mr [NAME].

2. Almost immediately [NAME] challenged Mr [NAME] authority to exercise the option. On 3 July Mr [NAME] emailed Mr [NAME] requesting clarification of his authority to give the notice of exercise. No reply was received to the email of 3 July. So Mr [NAME] emailed Mr [NAME] again: this time asking for evidence of Mr [NAME] appointment as [NAME]'s agent to exercise the Call Option.

3. Mr [NAME] replied the same day, 24 July 2014, in an email to Mr [NAME], copied to "[NAME]" at [NAME] and Mr [NAME] which implies that Mr [NAME] believed that Mr [NAME] should accept that Mr [NAME] has general authority to act on behalf of [NAME]: "[NAME], The fact that we are the registered office for the company as well as the fact that all parties included in the above email are well aware that I act as the accountant for [NAME] and his associated entities is the basis of my authority. [NAME] your own conduct in sharing confidential information with me regarding [NAME] highlights the fact that you are well aware of the representation and position in which I act for my client. A company constitution is not a document that is modified each time there is a shareholder change in a company, and we are not at liberty to provide such documents to you. Furthermore acting on behalf of my client I require information on the expenses incurred to date in [NAME] due to the recent loan in May from [NAME] which without prejudice could be oppressive in order to increase the loan balance. I await your prompt response in accepting my authority. Kind Regards,"

1. The parties exchanged further correspondence in late July. On 19 [NAME] solicitors, [NAME] lawyers advanced argument as to why Mr [NAME] exercise of the Call Option was not valid and invited [NAME] to advise the legal basis on which it was contended that Mr [NAME] had authority to exercise the Option. The letter argued: that Mr [NAME] did not have the requisite legal authority to exercise the Call Option as agent expressly conferred upon him; that the exercise of the Call Option did not specify the number of shares for which the Call Option was being exercised; and that it was not in writing. The letter invited [NAME] to "advise as to the legal basis on which [NAME] has authority to exercise the Option" and pointed out that there should be "no need for [NAME] to incur legal costs in making an application to the Court for a declaration" and the invalidity of the exercise of Call Option. No one on behalf of [NAME] responded to [NAME] solicitors' letter for some weeks. But on 1 October Mr [NAME] emailed Mr [NAME] disputing that email was an insufficient means of communication for the notice of exercise, adding "we challenge the fact that you do not accept our notice to exercise and will be putting something formal in place shortly". But Mr [NAME] did not at that stage send any documents evidencing his appointment as [NAME]'s agent to exercise the Call Option.

2. With this background [NAME] filed its Summons seeking declarations to the effect that [NAME] had failed to exercise its Call Option, including on the grounds that Mr [COUNSEL] was not its duly authorised agent for the purposes of giving notice of exercise.

(c) 14 November 2014 – 1 March 2015: the period of shareholder loans claimed and the summary judgment application 1. After the Summons was filed it was served on [NAME] on 19 November 2014. [NAME], [NAME] and [NAME] filed a notice of appearance for [NAME] on 15 December 2014. [NAME]'s solicitors quickly asked for copies of supporting documents confirming the amount claimed in the Summons of $527,687.21. 2. [ADDRESS] vacation was about to intervene but the solicitors on both sides, [NAME] of [NAME] and Ms [NAME] of [NAME] both remained active in their client's interests before the resumption of the new law term in February 2015. On 16 [NAME] wrote to [NAME] and [NAME] complaining that the request for all supporting documentation to show how the $527,687.21 had been calculated was "oppressive". [NAME] asserted for [NAME] that Mr [NAME] had sufficient familiarity with the expenses of the project (he remained involved with the project until recently) to be able to review the exhibit to Mr [NAME] affidavit and identify those items that were disputed and those that were not. [NAME] said "if there is any item that is genuinely disputed, it can be specified to us and we can then provide the appropriate material to justify the item. Requiring the source material for every item will unnecessarily increase the cost of the proceedings in circumstances where [NAME] believes your client is insolvent". 3. [NAME] and [NAME] reply on 17 December 2014 indicated acceptance of the position that had been put on behalf of [NAME] in relation to the call for supporting documentation in relation to the amount of $527,687.21. Ms [NAME] said "I am seeking some further instructions from [NAME] on expenses that may be an issue, and we will try and identify any general disputed items". 4. [NAME] followed up on 8 January 2015. Then on 23 January 2015 [NAME] and [NAME] emailed [NAME] advising that "[NAME] has been excluded from receiving any documentation about particulars in relation to expenses that have been incurred and paid and has no verification of the monies said to have been paid by your client to [COMPANY] other than the schedule that you have provided". [NAME] nevertheless indicated that the firm had instructions to request documentation and invoices relevant to some 11 creditors amounting to approximately $583,000, representing a total value of just under $586,000.

5. On 28 January 2015 [NAME] emailed [NAME] attaching invoices, making up the expenses funded by loans from [NAME] to [NAME] and where possible the underlying invoices. Not all the invoices were supplied. Those not supplied were promised later. [NAME] acknowledged one mistake in the amount of $11,000 which was deleted from the schedule of claimed shareholder loans. This letter made the profitable suggestion that was ultimately taken up in the form of a reference out to the referee Mr [NAME], that an independent auditor be appointed to determine the amount of [NAME]'s loans to [NAME] on the basis that the auditor report only on items that [NAME] disputed and with the appointment to commence only when the issue of the validity of the exercise of the Call Option had been resolved.

6. The same day [NAME] served its affidavits. The two affidavits of Mr [NAME] and Mr [NAME] (the latter unsworn) annexed an undated letter from [NAME] to Mr [NAME] which asked Mr [NAME] to attend to the exercise of the Call Option.

7. On 30 January 2015 [NAME], [NAME] accepted [NAME] proposal that if the Court determined that the Call Option was validly exercised for the appointment of an independent auditor to determine items that [NAME] disputed were funded by loans from [NAME].

8. The correspondence exchanged on 30 January 2015 was an important preliminary skirmish to the cost argument that has now eventuated. [NAME] wrote on 30 January 2015 to [NAME] and [NAME] emphasising how much material had been given to [NAME] to prove the shareholder loans and requesting that attention be given to narrowing the matters in issue, as follows: "Your client has now been provided with considerable detail of the breakdown of the [NAME] Group shareholder loan ledger and should be in a position to narrow the scope of any dispute as to the amount of the shareholder loan. If the scope of any dispute as to the amount of the shareholder loan is not narrowed, [NAME] will be forced to formal proof of every item in the shareholder loan ledger. We are presently making arrangements for that formal proof to be included in affidavits in reply. In our view, this will be excessively wasteful of the court's time and unnecessarily run up [NAME]'s costs of proving matters that ought properly not to be in dispute. We put you and your client on notice that, should your client not narrow the scope of the dispute as to the amount of the shareholder loan, [NAME] reserves, and will apply to the court for, its costs in that regard on an indemnity basis." 1. [NAME] and [NAME] replied on 30 January 2015 indicating [NAME]'s co-operation with the proposal for an independent auditor but intimating that it was a matter for [NAME] what evidence it wished to adduce: "In relation to your suggestion (that in the event that [NAME] is successful and the Court determines that the Option was validly exercised, we have no objection to an independent auditor being appointed at the successful completion of the proceedings to determine any items disputed by [NAME] making up the expenses that were funded by loans from your client. We agree that this will substantially reduce time and costs for all parties. In relation to your Email of today's dale, we believe that our response above, covers the second paragraph of your Email. It is obviously a matter for you to determine what evidence is necessarily required by your client, but we are happy, as indicated above"

1. The [NAME] letter of 30 January also expressed surprise that Mr [NAME] had not previously "provided or outlined", when requested, the material now relied upon in evidence to support his claim of having actual authority from [NAME] to exercise the Call Option.

2. Then on 9 February 2015 [NAME] served further evidence from Mr [NAME], the Chief Financial Officer of the group of companies to which [NAME] belonged and proving the various categories of payments and expenditure to establish the conclusion that [NAME] had lent, advanced or provided financial accommodation to [NAME] totaling some $1,227,510.99 between 1 July 2012 and 21 January 2015. The documentation Mr [NAME] had caused to be gathered from the purposes of his report covered a broad compass: amounts [NAME] had lent to or been repaid by [NAME]; the payment out of [NAME]'s loan account with [NAME]; invoices that [NAME] had directly paid on behalf of [NAME] to [NAME]'s trade creditors and various items which were subject of commentary because financial adjustments were required.

3. After Mr [NAME] affidavit was served, [NAME] and [NAME] expressed some surprise that it had been served at all in light of the agreement that had been reached about expert determination of the amount in issue. In this correspondence Ms [NAME] offered the view that Mr [NAME] affidavit was evidence in reply rather than in chief, which in light of the content of Mr [NAME] affidavit, was obviously right.

4. But the next day [NAME] changed position. Despite previously foreshadowing the possibility of a forensic examination of the [NAME] letter to Mr [NAME] said it had decided no longer to contest Mr [NAME] authority and would not seek the primary relief sought in prayers 1 to 4 of the Summons. The same day [NAME] filed a motion seeking orders for the amendment of the Summons 5. The relief sought in the Amended Summons and the Motion may be briefly summarised. [NAME] annexed a schedule of items totaling $1,227,510.99 which [NAME] claimed represented financial accommodation it had given to or for the benefit of [NAME] in the form of shareholder loans. The Motion sought that [NAME] notify [NAME] of the items listed which [NAME] disputed were shareholder loans or were in the amount claimed and then it sought the referral of any disputed items to a referee. The Motion also sought the amendment of the Summons. Paragraphs 5A to 5D of the Amended Summons sought specific performance of the Call Option, the appointment of an referee to calculate the amount of the shareholder loans and a declaration of entitlement to terminate the Call Option in the event that [NAME] did not specifically perform it.

6. On 16 February 2015 [NAME] and [NAME] wrote to [NAME] contending that the date for calculation of the shareholder loans for the purposes of the Call Option should be 27 July 2014, 30 days after the exercise of the option. In the original Summons the shareholder loans had been claimed as able to be included in the calculation up to 14 November 2014. But in the proposed Amended Summons they were calculated to 31 January 2015. [NAME] and [NAME] foreshadowed that if there was no agreement about the proper cut-off date for the calculation of Shareholder Loans that a Cross Claim would be filed seeking a declaration as to the proper construction of clause 4.1 as to the calculation of shareholder loans.

7. But the parties agreed to file Consent Orders on 17 February 2015, giving [NAME] leave to file the Amended Summons on or before 3 March 2015, and to [NAME] to file and serve its Cross Claim before 17 March and for the matter to be stood over for further directions. 8. [NAME] and [NAME] continued to write to [NAME] concerning negotiations that were going on in parallel with this dispute and did so, for example, on 23 February 2015.

(d) 2 March 2015 – 22 May 2015: [NAME] as a secured creditor and the reference 1. [NAME] filed an Amended Summons on 2 March 2015. It deleted prayers 1 to 4 that raised the issue concerning Mr [NAME] authority to exercise the Call Option. The Amended Summons also varied prayer 5 to reduce the amount claimed that [NAME] was required to pay on exercise of the Option back to a calculation of shareholder loans up to 27 July 2014. In light of [NAME] concession about the calculation date, [NAME] solicitors, [NAME], suggested to [NAME] and [NAME] that there may now be no reason for [NAME] to file a Cross Claim for the construction of the Call Option.

2. But on 2 [NAME] also forwarded to [NAME] and [NAME] the three 8 April 2014 loan and security agreements between [NAME] and [NAME]. [NAME] communicated this information in terms that intimated that [NAME] financial support of [NAME] may not be ongoing: "The plaintiff puts the first defendant on notice that the shareholder loan advanced by the plaintiff to the second defendant Is due for repayment by the second defendant on 31 March 2015. We enclose, for your Information, a copy of the Loan Agreement, Deed of Charge and Mortgage of Lease between the plaintiff and the second defendant. There is a risk that the plaintiff may not provide ongoing financial support for the second defendant beyond the due date for repayment. In that event, the second defendant will be insolvent. The impending repayment date makes the resolution of these proceedings critical, if the second defendant is to avoid risking insolvency. We trust that you will impress the urgency of this issue on the first defendant."

1. The 8 April 2014 loan agreement, deed of charge and mortgage of lease supplied with a letter of 2 March were made between [NAME] and [NAME]. In each case [NAME] was acting as trustee for the [COMPANY]. It is not necessary for the purposes of these reasons to distinguish [NAME] acting in its trust capacity in describing these documents. The documents were executed by Mr [NAME] and Mr [NAME] as agent, on behalf of each company. The loan agreement provided for [NAME] to make a loan facility available to [NAME] up to a facility limit of $1,000,000 with a repayment date of 31 March 2015, 3 months before the date of expiry of the Call Option. The obligations under the Loan Agreement were supported by a Deed of Charge granting [NAME] broad powers upon default under the Loan Agreement, including the appointment of a receiver. The Loan Agreement obligations were also secured by a mortgage by [NAME] of its leasehold interest in the quarry, registered under the Real Property Act. It is apparent from the terms of [NAME] 2 March 2015 letter that [NAME] was informing [NAME] for the first time of these loan and security arrangements. 2. [NAME] reacted strongly to this revelation. On 16 March 2015 [NAME], [NAME] and [NAME] wrote to [NAME] raising concerns about the loan and security documents and threatening to commence proceedings to remedy under Corporations Act 2001 (Cth), ss 236 and 237, seeking leave to proceed on behalf of [NAME] to set aside these documents and seeking an undertaking from [NAME] that it would take no action to call for a repayment of the loan or to assert any rights pursuant to the Deed of Charge. Pending determination of [NAME]'s Cross Claim, or a claim by [NAME] in the name of [NAME], the gravamen of [NAME]'s contentions were that consensual arrangements between [NAME] and [NAME] and representations made by [NAME] were to the effect that: shareholder's loans were at all times agreed to be unsecured; that upon exercise of the [NAME]'s payments to [NAME] would resource [NAME] with the capacity to repay 50 per cent of its obligations to [NAME] in any event; and, with superior status as secured creditor [NAME] would now be able to defeat the operation of the mechanism contemplated under the terms of the Call Option on 31 March 2015 three months before the expiry of the option period by enforcing the charge and mortgage. In substance [NAME] alleged that [NAME] was acting inconsistently with and so as to derogate from the interest it had conferred under the Call Option itself. [NAME] foreshadowed that the Cross Claim it was contemplating would give effect to these claims if [NAME] did not give an undertaking by 18 March 2015. 3. [NAME] responded on 18 March. In [NAME]'s response it rejected [NAME]'s request for an undertaking, contested in some detail [NAME]'s attack on the loan and security documents and proposed a compromise involving [NAME] paying $450,000 into Court to be held on account of [NAME]'s obligations under Call Option clause 4.1(c) and then for a referee to determine whether more than that amount was payable as consideration for the exercise of the Call Option. 4. [NAME] frustration at this time is evident from the 18 March 2015 letter from [NAME]. It contended that it had by then accepted that [NAME] had validly accepted its option to purchase its shares and that the relevant date for calculation of the shareholder loans was 27 July 2014, such that the only other matter remaining in issue was the calculation of [NAME]'s obligation to lend [NAME] working capital in accordance with Call Option deed clause 4.1(c). And to that end [NAME] stated that it had already particularised in detail the shareholder loans it had made. The delay in progressing the proceedings that [NAME] blamed on [NAME] between 11 February and 18 March caused [NAME] to foreshadow that it would make an application for expedition. 5. [NAME] accused [NAME] and [NAME] of having "completely misconstrued the effect of the Call Option deed" and to have taken a position which did not "accord with the legal or commercial realities of this case". In answer to [NAME]'s contentions the essence of [NAME]'s position was conveniently set out in paragraphs 2.3 to 2.6 of the [NAME] [NAME] 18 March letter as follows: "2.3 During the option period, your client was not a shareholder in [NAME]. Your client will not become a shareholder in [NAME] until completion of the transfer of the shares in accordance with the requirements of the call option deed in which completion is specifically defined: Completion of the parties' respective obligations under clause 4.1 is Interdependent. No party will be obliged to perform their respective obligations unless all such obligations are performed at the same time. 2.4 Your client has not yet performed its obligations under clause 4,1 (c) of the call option deed, it is not yet a shareholder in [NAME]. In the circumstances, [NAME] does not have the Corporations Law, fiduciary or other obligations asserted in the Letter. Your client had no interest in any shares in [NAME] until the call option was properly exercised. The loan agreement and security document were entered into before that date, that is, before your client had any interest in the shares. 2.5 In the meantime, [NAME] has been free to carry on its business, and the business of [NAME], in accordance with normal business practice and any lawful obligation. It is, with respect, an extraordinary proposition that [NAME] was somehow not entitled to secure money which it continued to lend to [NAME] for the purpose of [NAME] carrying on its business, There can be no suggestion that the advances made by [NAME] to [NAME] were anything other than perfectly normal commercial transactions. Indeed, they were transactions favourable to [NAME]. 2.6 On the basis of these submissions [NAME] will not be providing the undertaking sought in the Letter" 1. [NAME] did not accept the offer. Instead on 23 March it filed a Cross Claim seeking orders: for [NAME] and [NAME] to deliver up the loan agreement and security documents for cancellation; for the discharge of the mortgage; and for an injunction restraining [NAME] from taking any further step to enforce the loan or security agreements and damages. It also filed a motion seeking urgent orders restraining [NAME] from taking steps to enforce the loan and security agreements and orders granting leave to [NAME] to bring a Cross Claim in the name of [NAME] in terms of the orders being sought in the Cross Claim. [NAME] took the view that the quantification of the shareholder's loan should be deferred until the 23 March Cross Claim and Motion had been determined.

2. On 24 March 2015 [NAME] replied threatening to seek security for costs on the Cross Claim should [NAME] seek to proceed with the Cross Claim and offered not to enforce the loan and security agreements on the basis that: 1. [NAME] identify the items in [NAME]'s claim to a shareholder loan which [NAME] disputes;

2. The disputed items be referred to a referee for determination; and 3. [NAME] pay 50 per cent of the disputed items into Court by no later than 10 April 2015.

1. The following day, 25 March 2015 [NAME] and [NAME] replied to [NAME] accepting the offer. Consequential orders were made on 27 March 2015 before the duty judge to give effect to that agreement. The orders were then made by myself sitting as duty judge on 27 March 2015. Those orders attached a First Schedule with 54 potentially disputable items with a net total value of $1,053,769.10; the Second Schedule listed questions that the referee was to enquire into and report on. The orders relevantly provided as follows: "1. By 5pm on 1 April 2015, the first defendant notify the plaintiff of:

1. The items (and amounts) listed in the First Schedule to these Orders which the first defendant accepts constitute loans, advances or other financial accommodation, given to or for the benefit of the second defendant by or on behalf of the plaintiff as shareholder loans, calculated in accordance with the definition of shareholder loan contained in clause 1.1 of the call option deed (Option Deed) entered into by the parties dated 27 November 2013 (Undisputed Amounts).

2. The items (and amounts) listed in the First Schedule to these Orders which the first defendant disputes constitute shareholder loans calculated in accordance with the definition of shareholder loan contained in clause 1.1 of the Option Deed (Disputed Amounts), and the grounds for such dispute.

3. The amount of interest specified in the First Schedule to these Orders which the first defendant accepts is properly calculated in accordance with clause 1.1 of the Option Deed.

2. Pursuant to Part 20 Rule 14 of the Uniform Civil Procedure Rules (UCPR), the dispute under Order 1 be referred to Dr [NAME] (referee) for enquiry and report on the matters in the Second Schedule to these Orders.

3. By no later than 5pm on 10 April 2015, the first defendant pay into Court an amount equal to 50% of the Undisputed Amounts.

4. Without affecting the powers of the Court as to costs, the plaintiff and the first defendant be jointly and severally liable to the referee for the fees properly payable to the referee.

5. The parties deliver to the referee a copy of these Orders, together with a copy of Division 3 of Part 20 of the UCPR. 6. [ADDRESS] directs that: subject to paragraphs (b) and (c) hereof, the provisions of Part 20 Rule 20 shall apply to the conduct of proceedings under the reference; the reference will commence on 2 April 2015 unless otherwise directed by the referee; 1. the referee consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination to be made including, if the referee thinks fit: the making of inquiries by telephone; site inspection; inspection of plant and equipment; and communication with experts retained on behalf of the party; 1. any evidence in chief before the referee shall, unless the referee otherwise permits, be by way of written statements signed by the maker of the statement; 2. the referee submit the report to the Court in accordance with Part 20 Rule 23 addressed to the Equity Division Registrar on or before 5 May 2015.

7. If for any reason the referee is unable to comply with the direction for delivery of the report to the Court by the date specified in these Orders, the Court directs that the referee is to provide to the Equity Division Registrar an interim report setting out the reasons for such inability and an application to extend the time within which to deliver the report to the Court to a date when the referee will be able to provide the report.

8. Liberty be granted to the referee or any party to seek directions with respect to any matter arising in proceedings under the reference upon application made on 48 hours' notice or such lesser notice ordered by the Court.

9. Costs of the proceedings (including the reference proceedings, the Notice of Motion filed by the plaintiff on 11 February 2015, the Cross Summons filed by the first defendant on 23 March 2015 and the Notice of Motion filed by the first defendant on 23 March 2015) be reserved.

10. The parties be granted liberty to restore the matter on 3 days' notice.

11. The proceedings (including the Notice of Motion filed by the plaintiff on 11 February 2015, the Cross Summons filed by the first defendant on 23 March 2015 and the Notice of Motion filed by the first defendant on 23 March 2015) be stood over for further directions on 12 May 2015 before the Registrar in Equity at 9.00am. THE COURT NOTES THE UNDERTAKING OF THE PLAINTIFF TO THE COURT THAT 12. The plaintiff will not take any step to enforce the loan agreement, the deed of charge or the mortgage of lease between the second defendant and the plaintiff (each dated 8 April 2014, and referred to in the affidavit of [NAME] dated 23 March 2015), before 31 May 2015 on the basis that: the first defendant complies with Order 1 by no later than 5pm on 1 April 2015; and the first defendant pays into Court 50% of the Undisputed Amounts by no later than 10 April 2015."

1. The due date for the repayment of the shareholder loan under the loan and security agreements, 31 March 2015, passed by without incident in conformity with the undertakings that [NAME] had given. But in a letter of the same date [NAME] sought to contain the range of the dispute in advance of the due date for [NAME]'s obligation to notify disputed amounts under the consent orders. [NAME] noted that Mr [NAME] had been a director of [NAME] and involved in its day to day management until 27 November 2013, the day of the signing of the Call Option and had been providing services to the underlying quarry project until May 2014. [NAME] made the point that in those circumstances Mr [NAME] could have no good faith objection to items in the schedule of disputed items that had been incurred up to 27 November 2013. This left only 9 items in the schedule totalling some $492,937.50 which were open for dispute. [NAME] explained that those 9 items could be readily accounted for: 1. $153,344.08 paid in 3 instalments by [NAME] to [NAME]; 2. $4,593.42 paid in 2 instalments by [NAME] to [COMPANY] (a company associated with Mr [NAME]); 3. $335,000 paid in 4 instalments by [NAME] or its associated entities by direct deposit into [NAME]'s bank account.

1. As to the last sum [NAME] invited [NAME] to detail the basis of any dispute if it were to be alleged that the $335,000 paid into [NAME]'s bank account was used for the purposes other than the proper purposes of [NAME].

2. The list of disputed items was due the following day, 1 April 2015. [NAME], [NAME] and [NAME] served [NAME] with a list of disputed items and grounds for objection on 1 April. [NAME] disputed every item in the Schedule other than the modest amounts that had been paid to either [NAME] or [COMPANY].

3. Then on 2 April 2015 [NAME] wrote in reply to [NAME] letter of 31 March 2015, explaining their position: "We respectfully disagree with all of your complaints. You chose the procedure for reference out. That procedure required [NAME] to make known items in dispute; that step has been taken; and the matter is now before the Referee for enquiry and report."

1. The [NAME], [NAME] and [NAME] letter of 2 April advanced general grounds for dispute which were then elaborated with more specific grounds. The general grounds for dispute were the following: "(a) As far as the First Defendant is aware, none of the Disputed Amounts was for the benefit of SFQ, as distinct from the benefit of other entities related to or associated with [RESPONDENT]; (b) As far as the First Defendant is aware, none of the Disputed Items was lawfully authorized by SFQ; (c) None of the Disputed items can be authenticated and verified without independent audit; (d) All of the Disputed Items are subject to the claim for set-off in favour of SFQ pursuant to the derivative claim made on behalf of SFQ in these proceedings; (e) Alternatively, all of the Disputed Items as the Court may determine, are subject to set-off in favour of SFQ pursuant to the derivative claim made on behalf of SFQ in these proceedings," 1. [NAME] replied firmly on 2 April stating that [NAME] letter of dispute does not comply with the Court's order, demonstrates bad faith and is probably an abuse of process.

2. And putting [NAME] on notice that [NAME] would seek indemnity costs, as indeed they have done. The parties joined issue on whether there was a genuine dispute. On 8 April 2015 [NAME], [NAME] and [NAME] replied rejecting [NAME] contentions in their letter of 2 April.

3. But by then the processes of the reference were all underway. On 10 April 2015 [NAME] served in the reference the affidavit of Mr [NAME] of that date setting out the basis of its claim. On 23 [NAME], [NAME] and [NAME] served Mr [NAME] affidavit in reply. But the same day, 23 April 2015, [NAME] served on [NAME] a notice to complete in respect of the exercise of the Call Option, leading to the final phase of the parties' dispute.

(d) 23 April 2015 – 1 June 2015: [NAME]'s Notice to complete and completion 1. On 23 April 2015 [NAME] served a notice to complete the Call Option on [NAME]. The notice declared that [NAME] was ready, willing to complete the purchase contemplated by the Call Option, referred to clause 4.1(b) and (c) of the Call Option requiring completion within 30 days of the Exercise Notice and stated that [NAME] had not completed the purchase within the required time and gave notice requiring completion on or before 3pm on Monday 1 June 2015 and declaring time to be of the essence.

2. The same day [NAME] emailed [NAME] seeking a better understanding of the basis on which [NAME] claimed that [NAME] had an action against [NAME] arising out of the loan and security agreements, as alleged in the Statement of Claim. [NAME] was arguing that at best [NAME] might have a right of set off against [NAME] for damages suffered by [NAME] to reduce the amount payable by [NAME] to [NAME] if such damage could be shown from execution of the loan documents, but otherwise [NAME] pointed out that the loan documents were in a standard commercial form. [NAME] invited [NAME] to explain any "commercial issue" it had with the loan and security documents because [NAME] apparently did not understand any "parity" issue between [NAME] and [NAME]. [NAME] said that [NAME] "is willing to consider a compromise regarding the loan transaction documents provided [NAME] resource groups legitimate commercial interest are also accommodated. If [NAME] quarries claims an entitlement to parity it should be parity in all respects (including contributing to the funding of the project). This parity on [NAME] quarries' part has not been evident to date". Ms [NAME] of [NAME] replied the same day declining to debate the legal issues but offering to approach the matter commercially. [NAME] in turn replied saying it wished to understand any relevant commercial disadvantage [NAME] was said to have suffered through execution of the loan documents. 3. [NAME] served its notice to complete at the registered office of [NAME] on 27 April.

4. In the meantime the reference was progressing. [NAME] [NAME] filed its submissions on 29 April. The same day the referee gave directions to bring [NAME]'s reasons for disputing the claimed items into focus. The referee Dr [NAME] indicated to the parties in a letter of 29 April 2015 that of the various "transaction exclusion reasons" that [NAME] had offered for submitting that amounts should not be included in [NAME] calculation of the shareholder loan, he would accept only three as valid. The categories of exclusion, he was prepared to accept were categories 1, 6 and 7, namely that: (1) the amount was not for the benefit of [NAME]; (6) the amount loans advanced to [NAME] were not used for the benefit of [NAME]; and (7) there is no evidence the amount was paid by [NAME]. He declined to deal with other transaction exclusion reasons, which were that (2) the incurring of the amount was not authorised by [NAME]; (3) an independent auditor would be required to confirm the amount; (4) the amount is subject to a right of set off against other claims against [NAME] (5) there is no retainer between [NAME] and [NAME]; and (8) the invoice in question is not addressed to [NAME].

5. The referee invited the filing of relevant evidence and the lodgement of detailed submissions in relation to each amount [NAME] disputed. He directed [NAME] to identify reasons for the claimed exclusion for each disputed item, giving one of the transaction exclusion reasons that had been listed by the referee. 6. [NAME] filed its submissions and Schedule of disputes in relation to categories on 4 May. [NAME]'s 4 May submissions in reply took issue with [NAME] claims.

7. Some of [NAME]'s submissions were at a high level of generality, contending that "in relation to many items in the plaintiff's schedule the defendant has imperfect knowledge or no knowledge and no evidence one way or the other. Disputed transactions should not be accepted by you unless the plaintiff has proven, on the balance of probabilities that they occurred as stated and were properly authorised and were for the benefit of the company, [NAME]…" [NAME] contended in its submissions that shortly before the date of the Call Option on 27 November 2013 [NAME] had no dealings for or on behalf of [NAME]. Individual submissions were made in respect of 19 of the 54 items in [NAME] schedule.

8. The referee also sought clarification of a number of [NAME]'s submissions on 6 May. On 8 [NAME] served submissions on [NAME] and the referee together with additional supporting affidavits. But [NAME]'s submissions only dealt with the items for which [NAME] had identified transaction exclusion reasons. The same day [NAME] and [NAME] sought an extension of time to allow [NAME] to file further submissions and affidavits in response to the additional two affidavits that [NAME] had served. [NAME] additional affidavits seemed to have been a response to [NAME]'s 4 May submission that invoices, evidence of payment, identity of payers and proof of benefit to [NAME] were missing in respect of some transactions.

9. On 10 May 2015 the referee required further detailed submissions from [NAME] and allowed [NAME] until 18 May to respond. On 13 [NAME] served further detailed written submissions on the referee and [NAME] and [NAME].

10. On 18 [NAME], [NAME] and [NAME] served its submissions in reply in the reference and on 21 May the referee delivered his final report. He found that $985,045.42 of the $987,510 [NAME] claimed constituted proper components of the shareholder loan under the Call Option. 11. [NAME] various submissions to the reference made detailed reference to the alleged unreasonableness of the position [NAME] was taking in the reference.

12. Dr [NAME] report of 21 May contains a detailed analysis of what are said to be the proper components of the shareholder loan and then aggregates those proper components. The referee's report also analyses his approach previously indicated in directions that only items 1, 6 and 7 of the exclusion items should be included. In my view the referee's report took a reasonable and legally correct approach to assessing the components of the shareholder loan under the Call Option and should be accepted as legally correct, as indeed it appears to have been what then followed.

13. In parallel to the reference the parties were debating the notice to complete. On 7 [NAME] and [NAME] wrote to [NAME] calling on [NAME] to withdraw the notice to complete. In support of this contention [NAME] and [NAME] pointed out that prior to 2 [NAME] had denied that [NAME] had exercised the option, and on this same date had amended its Summons to claim relief such that within 30 days of the Court's order [NAME] would pay the price under the Option deed and lend $493,755 plus interest to [NAME]. But at the time of service of the notice to complete [NAME] pointed out that the Court had not made final orders in the proceedings. And that on 27 March the Court had ordered by consent that [NAME] pay into Court 50 per cent of the undisputed amount of the shareholder loan and that the disputed amounts be identified in the reference. And [NAME] and [NAME] pointed out that the undisputed amount had since been paid into Court. [NAME] and [NAME] contended that [NAME] was not in breach. Even if it were in breach non-completion by the date stipulated in the notice to complete would not justify an inference of repudiation on [NAME]'s part and further that the principle in Waarde v Dixon (1858) 28 LJ Ch 315 applied to these circumstances so that [NAME] would not be permitted to take inequitable advantage of any delay in completion by now rescinding.

14. The issue of a notice to complete during the reference was a surprising turn of events. But the correspondence continued. But on 8 May 2015 [NAME] and [NAME] communicated with [NAME] requesting withdrawal of the notice to complete an extension of the undertaking given by [NAME] on 27 March 2015. On 11 [NAME] sought further particulars of [NAME]'s loss that allegedly arose due to the loan and security agreements.

15. On 12 May at a directions hearing [NAME] amended its motion to seek an additional restraining order preventing [NAME] from terminating pursuant to the notice to complete and giving leave to [NAME] to file a motion for security for costs. These urgent claims were specially fixed for hearing before a judge on 25 May. On 19 [NAME] replied to the request for particulars. And on 22 [NAME] and [NAME] sent [NAME] a proposed draft statement of cross claim. The impending hearing resulted in the exchange of further correspondence which ultimately resulted in the proceedings being settled in principle subject to argument about costs.

16. But on 22 May in a letter from [NAME] to [NAME] and [NAME] took a position that removed much of the heat from the contest about the loan and security agreements. [NAME] explained its interpretation of the Call Option which accepted that upon completion that [NAME] is obliged to advance a loan to [NAME] on the same terms as the loan between [NAME] and [NAME]. The letter then said (paragraphs 4 to 7) as follows: "4. Until completion of the Call Option Deed, the plaintiff was, and is, entitled to be granted, and to retain, the Loan Transaction Documents as completion might never happen and the first defendant might never become a creditor of the second defendant.

5. On completion of the Call Option, the plaintiff will terminate the Loan Agreement and discharge the Charge and Mortgage.

Accordingly, the loan from the first defendant to the second defendant will be on the same terms as the loan from the plaintiff to the second defendant, namely an unsecured on demand loan.

6. As completion is yet to occur, there has been no breach of clause 4.1(c) of the Call Option requiring that the loans be on the same terms. Further, as on completion of the Call Option Deed, the Loan Agreement will be terminated and the Charge and Mortgage will be discharged, neither the first defendant nor the second defendant have or suffer any loss or damage arising from the Loan Transaction Documents. The application for orders setting aside the Loan Transaction Documents and the application for interlocutory orders restraining enforcement of the Loan Transaction Documents are premature.

7. The first defendant was invited on several occasions to outline the first defendant's concerns and it was not until Thursday, 21 May 2015 that the first defendant stated, through Ms [RESPONDENT], that the concern was that, after completion, the loan from the first defendant to the second defendant would not be on the same terms as the loan from the plaintiff to the second defendant. The plaintiff has always emphasised that it will comply with the requirements of the Cal! Option Deed." 1. [NAME], [NAME] had made [NAME]'s position clear that its concern was a possible breach of the terms of the Call Option at completion, such that the loans from [NAME] to [NAME] would not be on the same terms as the loans from [NAME] to [NAME], as [NAME]'s would be unsecured and [NAME]'s secured. 2. [NAME] then put its position as follows: "9. Given the plaintiffs intention to terminate the Loan Agreement and discharge the Charge and Mortgage on completion of the Call Option Deed, any purported cross claim by the first defendant or the second defendant must fail and was always doomed to failure."

1. But [NAME]'s position did not emerge clearly until this exchange of correspondence in the third week of May between Ms [NAME] and Mr [NAME]. The greater mutual understanding of the detail of the parties' respective positions generated by this exchange removed the perceived impediments against the completion of the Call Option deed on 1 June in accordance with the notice to complete. That is indeed what happened.

2. On completion the loan agreement between [NAME] and [NAME] was terminated by agreement, such that it ceased to apply after completion. At completion [NAME] paid $525,347.32 to [NAME] and [NAME] transferred 10 of its 20 shares in [NAME] to [NAME]. And [NAME] issued debt instruments on the same terms as [NAME] and [NAME], in accordance with the terms of the Call Option deed. [NAME] also released the deed of charge and discharged the mortgage of lease, producing equality in the lending arrangements between the two [NAME] shareholders.

3. The parties agreed that no other relief was required in the proceedings as the option contract had been performed. All that remains is the unresolved arguments about costs. With this background the costs issues can be addressed.

Analysis 1. This section is divided into the three questions posed earlier in these reasons:

1. In this section the Court finds that neither party has behaved unreasonably in the Court-centred litigation. But in the reference [NAME] behaved unreasonably in continuing to put most of the 54 items in issue and [NAME] should have its costs of the reference on this ground. But more importantly [NAME] is also entitled to have its costs of the reference because of the outcome of the reference. It was almost certain that [NAME] would have succeeded on the reference. Looking at the referee's report and what was done with it [NAME] really did succeed. [NAME] has accepted it. 2. (a) Whether one or other party acted unreasonably? [NAME] submits that [NAME] behaved unreasonably from the commencement of the litigation so as to maximise delay and expense. [NAME] cites [NAME] conduct in two main areas as justifying this claim: (1) [NAME]'s conduct in respect to Mr [NAME] authority to exercise the option; and (2) [NAME]'s conduct in relation to the reference. There is no substance in the first of these submissions, but greater power in the second.

3. The Authority Issue. [NAME] principal complaint about the Charlton authority issue is that it was obliged to commence proceedings claiming prayers relief 1 to 4 challenging Mr [NAME] authority, when the issue could easily have been quietened much earlier than 28 January 2015 when [NAME] attached the letter of authority from [NAME] to Mr [NAME] for the exercise of the option. [NAME] says that if this had been done much earlier, it would have saved substantial costs.

4. There are problems with this allegation of unreasonableness. In the first place, [NAME] made it clear in its earliest correspondence that Mr [NAME] had exercised the option under actual authority from [NAME], so the position it had taken was never secret. [NAME] was entitled to take the authority point. But if it were disputed, [NAME] was entitled to advance its evidence on the point in its own way and in accordance with Court timetables.

5. Secondly, [NAME] is not to be blamed for not coming forward early with every document showing Mr [NAME] actual authority. [NAME] certainly was invited to substantiate the authority claimed. But Mr [NAME] was, I infer from the correspondence, well known to the personnel at [NAME] to be the accountant in charge of the registered office of [NAME] and someone known to [NAME] to be accustomed to execute matters on behalf of [NAME]. Given Mr [NAME] known existing relationship to [NAME], it would have been quite reasonable in the circumstances for [NAME] to have indicated to [NAME] (to encourage early disclosure) that if [NAME] showed that the option exercise was part of Mr [NAME] general or specific authority then [NAME] would readily drop the point. But the [NAME] [NAME] correspondence on the issue does not promise anything as clear as this.

6. Thirdly, [NAME] stance on this issue always risked the obvious outcome: that its challenge might fail when all the documents came out. When [NAME] did file its evidence attaching the authority from [NAME] to Mr [NAME] in accordance with the Court's timetable the issue quickly disappeared. But before that [NAME] did not have a legal obligation to produce every relevant document in its possession or risk an adverse costs order. [NAME] fails on this contention.

7. The Reference. But [NAME] is on stronger ground with respect to the conduct of the reference. In my view [NAME] behaved unreasonably in its later conduct of the reference, quite apart from the adverse outcome of the reference, that it suffered, which adverse outcome is the principal reason why the Court considers that a costs order in respect of the reference is appropriate, and is considered in section (b) below. 8. [NAME] case that [NAME] behaved unreasonably in the reference was essentially that [NAME] had already been provided with substantial materials by [NAME], relating to the purpose and validity of the payments asserted to be shareholder loans well before the reference started and that [NAME] through its director Mr [NAME] already had firsthand knowledge of and involvement in the payment of many of the disputed expenses. [NAME] says that therefore it was unreasonable of [NAME] to dispute everything except payments made to [NAME] and its associates.

9. The affidavit of Mr [NAME] of 9 February 2015 filed in the proceedings, together with information exchanged through the solicitors' letters did result in a large quantity of supporting material for the alleged Shareholder Loan being supplied to [NAME] by about mid-February 2015. 10. [NAME] points out that Mr [NAME] was a director of [NAME] until 28 November 2013 and was substantially involved in the quarry project until at least that time and therefore he could have "no good faith objection to expenses incurred prior to this date". [NAME] also argues that excluding monies paid prior to 28 November 2013 and excluding monies paid to [NAME] and [NAME]'s associated entities, of the balance of the monies [NAME] alleged constitute the Shareholder Loans, some $335,000 was funds that [NAME] and associated entities had paid directly into [NAME]'s bank account. [NAME] pointed to Mr [NAME] general knowledge as a director of [NAME]'s operations and that he had insisted when a director that invoice payments needed to "be signed off by myself or [NAME], my P.A. in my absence". [NAME] also points to a number of invoices addressed to Mr [NAME] or emailed to Mr [NAME], so that [NAME]'s contribution to their payment could be requested and received.

11. Finally, [NAME] makes the point that it is difficult to accept that Mr [NAME] could have been concerned about whether [NAME]'s expenditure was for its benefit and was made with sufficient corporate authority because after 6 December 2012 he himself had authorised the making of two $50,000 deposits into the [NAME] bank account, apparently to cover its expenditure. [NAME] has provided detailed material in support of these submissions which the Court has considered.

12. In my view it was not unreasonable for [NAME] initially to contest [NAME] quantification of the Shareholder Loan. [NAME] unreasonable conduct on the reference does not arise from the initial contest about the amounts claimed as Shareholder Loans. But [NAME]'s conduct becomes unreasonable later in the course of the reference. This is so for the following reasons.

13. Firstly Mr [NAME] had sworn an affidavit on 22 April 2015 in which he deposed to the fact that although he was a director of [NAME] until November 2013 he was not actually involved in payment of expenses, except those paid directly through [NAME] and that the balance were paid through [NAME]. Moreover he says that when he ceased to be a director he was not provided with any information at all in relation to the financial position of the first defendant, had no input into the DA process for the quarry, and did not pay or cause to be paid any [NAME] invoices. On an application such as this the Court cannot determine that Mr [NAME] evidence was false. All that can be said on this application is that it represented a genuine contest about his lack of knowledge of the underlying expenses and that the reference did not allow for cross-examination on such issues.

14. Secondly, it must be said that $125,000 of the underlying expenses the subject of the Shareholder Loan were incurred before December 2012, which is almost 12 months before [NAME] retired as a director of [NAME] and some $250,000 of the loans claimed were incurred in a period a little under 6 months before he retired as a director. That his recollection of such transactions is imperfect is understandable, even if he did advance $100,000 in about December 2012 to [NAME].

15. Thirdly, it is not valid for [NAME] to point to the $335,000 paid by [NAME] directly into [NAME]'s bank account after November 2013 (and excluding monies paid to [NAME] and its associates) as an item that can not be questioned. [NAME]'s submissions failed to take into account that [NAME] itself had entered into the loan and security agreements on 8 April 2014 with [NAME] and only revealed them for the first time to [NAME] on 2 March 2015, thereby engendering understandable apprehension on [NAME]'s part about all the transactions which had occurred between [NAME] and [NAME] after Mr [NAME] had ceased his involvement in [NAME]. Even after [NAME] established that it paid $335,000 into the [NAME] bank account after November 2013, it was still legitimate for [NAME] to enquire as to where and when these funds had been applied and whether they had all been applied for the benefit of [NAME] as distinct from entities associated with [NAME] and to ensure the disputed items were properly authorised.

16. But [NAME] should have conceded more, and should have done so no later than the last month of the reference. It is difficult not to reach the conclusion, when one looks at the period between [NAME] 22 April 2015 affidavit and the referee's ultimate report on 12 May 2015 (the last month of the reference) that unless [NAME] put on more detailed evidence or argument putting a positive case why it thought [NAME]'s claimed expenses were not valid components of Shareholder Loans, it was looking increasingly likely that [NAME] would be unsuccessful on the reference. Although Mr [NAME] affidavit of 22 April 2015 puts in issue the inferences that might arise from invoices and emails, addressed to him, [NAME]'s case is still left at a high level of generality. Unless further investigation was undertaken on [NAME]'s part it was probable by then that it was going to fail on the reference, as indeed occurred. In the absence of further investigation or putting on more positive evidence on its part it is correct in my view to characterize [NAME]'s conduct holding out in at least the last month of the reference as unreasonable.

17. But this period of unreasonable [NAME] conduct is probably not decisive on its own, because in my view a costs order should be made against [NAME] on the reference, as [NAME] was ultimately unsuccessful on the reference. This is discussed at the end of section (b) below. 18. (b) Whether one or other party was almost certain to have succeeded? [NAME] submits that if the Court is minded to award any cost in [NAME] favour that those costs should be limited to the costs in relation to the reference and that [NAME] should pay [NAME]'s costs of the Court proceedings. [NAME] argues that this is principally because it would have been successful in the Court proceedings or because [NAME] capitulated in respect of much of the relief sought in the Court proceedings. [NAME] deployed this argument in respect of five issues: (1) the question of the validity of the exercise of the option; (2) [NAME] claim for shareholder loans for an excessive period; (3) [NAME] default/summary judgment application; (4) [NAME] assertion of status as a secured creditor; and (5) [NAME] notice to complete. These are dealt with below. 19. (1) Validity of Option Exercise. [NAME] submits that [NAME] capitulated on its challenge to the validity of Mr [NAME] authority to exercise the Call Option. But this is not correct. This was a legitimate point for [NAME] to take, right up until [NAME] served its affidavit evidence on the 28 January annexing the authority [NAME] gave to Mr [NAME]. [NAME] reacted quickly and reasonably thereafter, giving notice by 11 February of dropping its claim. [NAME] could not in justice have a costs order made in its favour on this issue without having put all its cards on the table much earlier than it did. If it wanted a costs order in its favour it should have responded to [NAME]'s invitation and revealed Mr [NAME] written authority when the issue was first raised. It did not do that. 20. (2) [NAME] claiming the Wrong Calculation Period. [NAME] did claim shareholder loans calculated for an excessive period; but did not so claim for long. [NAME]'s original Summons filed on 14 November 2014 sought the calculation of shareholder loans up to that date. On 11 February this was expanded to seek the inclusion of loan advances up to 31 January 2015 in the calculation. This was wrong. The Call Option, clause 4.1 could only ever sensibly operate by calculating the Shareholder Loans at a time no later than 30 days after the option exercise: see clause 4.1(c) "SL is the aggregate of all shareholder loans at that time" [emphasis added], namely the time "within 30 days of giving the applicable Exercise Notice". 21. [NAME]'s solicitors pointed out in their 16 February letter that this was an excessive claim. [NAME] quickly abandoned it, with a concession on 2 March 2015 reducing the claim for the calculation of Shareholder Loans to a period only 30 days after the exercise of the option. But a costs order is not appropriate for a claim so fleetingly pressed and one upon which the success of the proceedings never depended. 22. (3) [NAME]/Summary Judgment Application. This application came and went quickly. It was filed on 2 December 2014 and dismissed by consent 17 days later on 19 December 2014, with the costs of the motion being reserved. The motion was probably filed in part because of [NAME] frustration with an opponent that it believed was insolvent and was engaging in conduct that [NAME] perceived was deliberate delaying tactics. [NAME] was in default of the Court's orders. In the spirit of Civil Procedure Act, s 56 the filing of the motion was a legitimate step to give procedural impetus to this contest and it existed too briefly in these otherwise substantial proceedings to warrant any costs order. 23. (4) [NAME] as a Secured Creditor. [NAME] assertion that it was a secured creditor, revealed on 2 March 2015 and settled about 10 weeks later with an exchange of correspondence on 21 and 22 May is a classic example of parties, through their legal advisers, reacting to and grappling with a new issue and then working through and resolving it fairly quickly when the full picture emerged through the exchange of correspondence about their respective legal positions. And in this case, that was done with demonstrable courtesy, reasonableness and objectivity by the legal practitioners on both sides, despite the apparently sharp suspicions entertained by their respective clients about the motives of the other client.

24. Once this information emerged, [NAME] was understandably concerned about what [NAME] might do to enforce the loan and security agreements. There was the obvious prospect that [NAME] would default on the loan agreement on 31 March and [NAME] would enforce the security agreements well before the exercise of the call option could be completed. Not until 22 May did [NAME] give the assurances: (1) that it would not seek to enforce the loan and security agreements after completion of the Option; and (2) that it would ensure in accordance with Call Option, clause 4.1(c) that [NAME]'s loan to [NAME] must be "on the same terms as the Shareholder Loan" by terminating the securities. Once it gave those assurances completion could proceed and the Court proceedings settled in substance.

25. Given the terms of clause 4.1(c) [NAME] would probably have been successful on this issue. But the Court will not make a costs order in [NAME]'s favour on the issue. When the loan and security agreement information first emerged, neither side immediately articulated either its full concerns or its full arguments. The parties were to a degree pre-occupied with the other issues concerning the reference and the notice to complete. And neither side staked its success on this issue by pressing it forward once the issue was fully understood. 26. (5) [NAME] to Complete. [NAME] service of a notice to complete on 27 April was as much an event born of [NAME] frustration with [NAME], as anything else. [NAME]'s conduct in the reference by that late stage was unreasonable, as the Court has found. The [NAME] notice to complete was [NAME] attempt to deal with the unreasonableness of what was happening in the reference and to bring all issues to a head. [NAME] attempt was ultimately successful.

27. Examination of the correspondence at the time shows that the notice to complete was one of the reasons the parties were focused just before a 25 May 2015 hearing before the Court on trying to work out how the loan and security agreements would work in relation to completion. They did that and the whole proceedings resolved. To a considerable extent the notice to complete was a legitimate catalyst for that sensible outcome. [NAME]'s contention is probably correct that [NAME] case on the notice to complete was weak, a costs order for [NAME] in respect of this issue is not appropriate when the wider context identified here is considered.

28. But the reference is a different matter. [NAME] actually succeeded on the reference. This is evident from Dr [NAME] report and from [NAME]'s acceptance of that report and the subsequent completion of the Call Option transaction based upon the referee's report.

29. Dr [NAME] report signed on 21 May 2015 comprehensively found all but $1,232.79 less than what was claimed and rejected all of [NAME]'s submissions either on a legal basis or on the basis that insufficient evidence was advanced to support [NAME]'s contentions.

30. Dr [NAME] made findings about the proper components of the Shareholder Loan, which appeared consistent with the way the Call Option operated. The report represents a clear and final conclusion, subject to adoption, on the issue of the quantum of the Shareholder Loan at the date requested. On any reasonable view [NAME] was successful against [NAME] on the reference.

31. But [NAME] says that the referee's report was not adopted. That is true but there is no obvious basis advanced as to why it is wrong or should not be adopted. And secondly, the [NAME] correspondence of 22 May 2015 made it clear that [NAME] was prepared to proceed with the purchase of the Call Option "on the basis of the Shareholder Loan amount as determined by Dr [NAME]". This, in my view, should be taken as acceptance of the correctness of the referee's report. 32. (c) Whether an award of indemnity costs is warranted? [NAME] has succeeded in obtaining an order for costs against [NAME] in respect of the reference. [NAME] now seeks an order for indemnity costs against [NAME]. Should the Court order that the costs assessment be on the indemnity basis? In my view, an order for indemnity costs is not warranted. 33. [ADDRESS] has general power to order costs on an indemnity basis under Civil Procedure Act, s 98 and under the Court's incidental power to control proceedings: Walton v McBride (1995) 36 NSWLR 440, at 461. Awarding indemnity costs presupposes some relevant unreasonable action including relevant misconduct in connection with the conduct of proceedings by the persons against whom the order is made: [NAME] v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 and see also Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213. 34. [ADDRESS] has found that [NAME]'s conduct in relation to the reference was unreasonable and that [NAME] ultimately failed on the reference. But without actually trying the case, which the Court is now discouraged from doing by the authorities, there is little basis for the Court to conclude this was deliberate conduct designed purposefully to delay [NAME] prosecution of the reference or to minimise the amount of money that [NAME] had to pay into Court before the reference concluded. As has been earlier indicated Mr [NAME] deposed to his lack of information about aspects of [NAME]'s expenses. Despite the fact that email evidence suggests he had received information about some of those expenses, what he actually knew or did not know was a triable issue of fact that the Court cannot readily determine on the papers before the reference and without cross-examination, on an application such as this one. 35. [NAME] did in contesting almost all the items in the Schedule to the orders for the reference can until about the last month of the reference be readily explained by uncertainty about the basis of the amounts being claimed against it, together with a failure to look closely enough at the probability of success or failure on each of the items. Proper and detailed attention to the latter issue by [NAME] during the reference would probably have indicated to [NAME] that failure on its part was the more likely outcome of the reference. But that does not mean that an order for indemnity costs is warranted. Such an order would only be appropriate in my view if wilful misuse of the reference process was demonstrated on the available evidence. And in my view it is not.

Conclusion and Orders 1. [ADDRESS] has found in the conduct of the proceedings, apart from the reference, that neither party has conducted itself unreasonably and neither party was certain to have succeeded on any aspect of the proceedings. However in relation to the reference, the Court finds that the defendant/cross-claimant, [NAME], in substance failed and conducted the reference unreasonably, such that it should now pay the plaintiff/cross-defendant, [RESPONDENT], costs of the reference on the ordinary basis. These costs will include the costs of the litigation associated with the reference.

2. But there may be an application by one or other party for a special costs order and there may be other consequential orders to be made to finalise the proceedings. To allow those matters to be dealt with the Court will grant liberty to apply.

3. The orders of the Court therefore will be:

1. Order the defendant/cross-claimant shall pay on the ordinary basis all the costs of the reference to Dr [NAME] including all the costs of the motion initiating the reference, undertaking the reference, receiving, considering and dealing with the referee's report;

2. Order that each party shall otherwise bear its own costs of these proceedings, including the costs of the argument as to costs.

3. Grant liberty to apply.

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Amendments 29 February 2016 - [23] "statement by in" to "statement in" [92] changed "the Waarde v Dixon" to "the principle in [NAME] v [NAME]" [102] "entitled have" to "entitled to have" [134] "[NAME]" to "[NAME]" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 February 2016