Adams Wholesale Pty Ltd v Donnelly Family Super Pty Ltd & Ors [2023] QSC 193

SUPREME COURT OF QUEENSLAND CITATION: Adams Wholesale Pty Ltd v Donnelly Family Super Pty Ltd & Ors [2023] QSC 193 PARTIES: ADAMS WHOLESALE PTY LTD ACN 101 316 938 (applicant) v DONNELLY FAMILY SUPER PTY LTD ACN 164 826 948 (first respondent) and RETEP NOMINEES PTY LTD ACN 073 985 341 (second respondent) and THINK CONVENIENCE PTY LTD ACN 125 666 953 (third respondent) FILE NO/S: 243 of 2023 DIVISION: Trial division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Cairns DELIVERED ON: Delivered ex tempore on 14 July 2023 DELIVERED AT: Cairns HEARING DATE: 14 July 2023 JUDGE: Henry J ORDERS: 1. Both applications are dismissed. 2. The applicant will pay the respondents’ costs, to be assessed on the standard basis of the application and cross-application, incurred subsequent to 28 April 2023. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – GENERAL MATTERS – where the parties have compromised on their cross- applications but not the costs thereof in the absence of a hearing on the merits – whether one party has acted unreasonably – whether either party should have their costs Re the Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia; ex parte Lai Qin [1997] 186 CLR 622 -- 1 of 5 -- 2 COUNSEL: M A Jonsson KC for the applicant D D Keane KC for the first and second respondents SOLICITORS: Preston Law for the applicant Results Legal for the first and second respondents [1] HENRY J: The applicant, Adams Wholesale Pty Ltd, owns 90 per cent of the units in the Nightowl Unit Trust, with 10 per cent being held by Donnelly Family Super Pty Ltd and Retep Nominees Pty Ltd, the first and second respondents. [2] Pursuant to an agreement between the then unitholders of 13 November 2015, put and call options were granted, exercisable as between Adams and Donnelly, by which Donnelly granted Adams – presumably now Adams and Retep – an option to purchase all of the units which Donnelly holds, and Adams granted to Donnelly an option to sell to Adams all of the units which Donnelly holds, with the respective call option and put option each being conditioned, inter alia, upon its exercise by delivering a notice of exercise of option. [3] By letter dated 14 March 2023, Donnelly and Retep purported to give notice of the exercise of the put option, annexing a document headed Notice of Exercise of Put Option. The content of the document contained terms which, it is not disputed, are unambiguous in articulating the exercise of the put option. However, Adams contended it was not a valid notice of exercise of the put option within the meaning of the agreement and, on 14 April 2023, filed an application for a declaration to that effect. Donnelly and Retep cross-applied by an application filed 10 May 2023 for a declaration that it was a valid notice of exercise of put option and, in the alternative, a declaration that a subsequent notice of exercise of call option by Adams on 6 April 2023 was valid. [4] The reason why Adams contends Donnelly and Retep’s notice was not a valid exercise of the option is the content in the covering letter enclosing the notice. After providing some background information, the letter stated: “We attach notice of put option pursuant to subclause 9.1.2 of the Agreement. We attach letter to the Trustee dated 14 March 2023 which sets out various claims for our clients relating to the Trust and the value of our clients’ unitholding. It is clearly necessary for there to be adjustments made to take account of the private benefits and breaches of trust engaged in by Mr Adams. The attached notice is delivered: 1. on the understanding and undertaking from the Trustee and AWPL that the adjustments sought by our clients will be made as outlined within the attached letter to the Trustee and taken account of for the purposes of any valuation by the Independent Accountant to determine Fair Value …”. [5] By letter of 6 April 2023, Adams’ solicitor wrote to the solicitor for Donnelly and Retep, indicating it considered the purported exercise of the put option: -- 2 of 5 -- 3 “… is ineffectual on account of the conditions upon which your clients purported to exercise the put option.” [6] The letter noted the unitholder’s agreement did not contemplate Donnelly and Retep having the right to impose such conditions upon Adams. Notwithstanding taking that point, the letter went on to explain that Adams wanted to purchase Donnelly and Retep’s units in the Nightowl Unit Trust and to exercise its call option to do so. It actually enclosed within the letter a notice of exercise of call option to that effect. The letter asked for confirmation that Donnelly and Retep accepted the purported exercise that the put option was ineffective and that the exercise of Adams’ call option will be effective. The solicitor for Donnelley and Retep responded that Donnelly’s recent purported call notice was void because there are no units that could be captured by it on account of what was asserted to be the valid exercise of Donnelly and Retep’s earlier exercise of their put option. [7] As to the complaint of Adams that it was ineffectual on account of the conditions put on it, Donnelly and Retep asserted in the covering letter: “The notice of exercise of the put option was not conditional. The matters identified in our letter dated 14 March 2023: 1. reflect our clients’ position in respect of matters that should properly be considered by the Independent Accountant in arriving at the Fair Value of the Units (as those terms are defined within the Unitholders Agreement); and 2. are not conditions (or matters for your client to accept or refuse) for the purposes of our clients validly serving the notice of exercise of put option on your client. It follows that the put option was validly exercised and notice delivered in accordance with the Unitholders Agreement.” [8] This was the mystifying equation presenting itself when this matter first came before me on 12 May 2023 and was adjourned to today. It was mystifying because both the exercise of the call option and the exercise of the put option would, in the circumstances, give rise to effectively the same evaluation and financial outcome, by which Adams would have to purchase Donnelly and Retep’s units for fair value. Given that unity of prospective outcome, it is truly difficult to understand how there was any legitimate need perceived in initiating and, more particularly, persisting with the initial application by Adams. [9] It of course may be accepted Adams did not accept the allegations of private benefits and breaches of trust imputed to him in the covering letter annexing the purported notice of exercise of put option. That may herald the influence of some forensic considerations unknown to this Court, but it provides no objectively logical legal basis to resist getting to the inevitably same contractually stipulated outcome of unit purchase for fair value. [10] In a similar vein, the corresponding obstinacy of Donnelly and Retep in not simply accepting Adams’ purported exercise of the call option may have been influenced by forensic considerations, but that too made no objectively commercial sense considered by reference to the inevitable unity of outcome to which I have referred. -- 3 of 5 -- 4 [11] Whatever forensic considerations may have been in play, it at least eventually dawned on the protagonists that a Court would not be very interested in them and would be mystified why its processes needed to be deployed at all in order to achieve a result which both sides wanted, and which was inevitable, despite both sides’ obstinacy in disagreeing on the notice triggering pathway to it. So it is that I was today informed the parties had reached a compromise as to a pathway to the result and could dismiss their applications. I will do so. [12] Argument ensued as to costs. The correct approach to resolution of that argument was identified by McHugh J in Re the Minister for Immigration and Ethnic Affairs and the Commonwealth of Australia; ex parte Lai Qin [1997] 186 CLR 622 at 624 – 625. In summary, where the parties have compromised the litigation in the absence of a hearing on the merits and in the absence of confidence as to what that hearing would have determined, there should be no order as to costs unless, of course, a party has acted unreasonably in commencing and or persisting in the continuation of litigation of the proceeding. [13] I have to say my initial impression was that both parties may have been unreasonable in that context, which would have favoured no order at all as to costs. However, on being taken to the correspondence and relevant dates, it emerged that there did come a time when Donnelly and Retep pulled back from their obstinacy, but their dawning of reasonableness was not reciprocated by Adams. [14] It will be recalled Adams’ application was filed 14 April and Donnelly and Retep’s was filed 10 May. As at 14 April, both parties were still stalled in their unreasonable positions of obstinacy and, in those circumstances, neither will be the beneficiary of a costs order reaching back in time to then. [15] However, on 28 April 2023, Donnelly and Retep’s solicitors wrote to Adams’ solicitor expressing a lack of understanding as to why Adams’ application had been filed given the inevitable unity of outcome. Perhaps they were overlooking their own earlier obstinacy. More relevantly, though, and to their credit, they went on to write the following: “12. While our client disagrees with your client’s position and is comfortable with its chances of successfully opposing the Application, in an effort to avoid unnecessary costs of an opposed application, our client makes the following offer: (a) the Application be dismissed with no order as to costs; (b) the parties agree that your client’s notice of call option dated 6 April 2023 is effective; and (c) the parties agree to a regime for providing submissions to the Independent Accountant to include information he or she is to take account of when determining Fair Value of the units. 13. This offer is open for acceptance until 9.00am on Tuesday, 2 May 2023, otherwise it will lapse, and we will seek out client’s instructions to: -- 4 of 5 -- 5 (a) brief Counsel to appear and oppose the Application; and (b) file a cross-application for specific performance. 14. Should your client fail to accept this offer, we will bring this letter to the Court’s attention on the question of costs. 15. We look forward to your response by 9.00am, Tuesday, 2 May 2023.” [16] This was a reasonable offer. It was even improved on in a further offer of 4 May 2023 in which they additionally offered to pay $5000 costs. The offer was not accepted. Indeed, on 8 May, Adams’ solicitor indicated that they did not even receive instructions on it before it had lapsed. The following day, 9 May, another offer was sent by solicitors acting for Donnelly and Retep. That letter foreshadowed the need for their cross-application, which was indeed later filed. I accept that later filed application was apt to protect their position. The letter’s offer was prima facie better than the early reasonable offers, offering consent to the very order sought by Adams and agreement that Adams’ 6 April notice was valid. That did not meet acceptance and the cross-application was filed. [17] Against this background, submissions regarding some manoeuvrings as to an acceptance of service are academic. It is clear the obstinate conduct of the parties prior to 20 April means neither should have their costs up to then. However, from 28 April, I am satisfied Donnelly and Retep were acting reasonably in their conduct in connection with the existing application and in initiating and continuing their cross- application whilst Adams was not. In the circumstances, the proper course is that Donnelly and Retep should have their costs of each application subsequent to 28 April 2023. [18] My orders are: 1. Both applications are dismissed. 2. The applicant will pay the respondents’ costs, to be assessed on the standard basis of the application and cross-application, incurred subsequent to 28 April 2023. -- 5 of 5 --