The High Court has ordered three corporate plaintiffs in a dispute over a 2017 Waratek merger to provide security for the defendants’ costs. Mr Justice Quinn said the defendants had a prima facie defence, and the plaintiffs had not shown that their inability to meet a costs order resulted from the defendants’ alleged conduct. The amount of security remains to be determined.
The ruling, delivered on 20 December 2019, concerns an interlocutory application for security for costs. The underlying proceedings remain unresolved. The court did not decide whether the merger was valid, whether it was properly implemented, or whether the later steps treating it as void were lawful.
The dispute concerns documents executed on 4 May 2017 that purported to merge Waratek Limited with US companies. The defendants contend that the merger relied on a “Co-Sale” provision requiring a bona fide sale to an unaffiliated third party. They allege that Brian Maccaba had an undisclosed interest in the companies involved and that the transaction was therefore invalid. The plaintiffs dispute those allegations and say the merger was valid. The court stressed that nearly all relevant facts were contested and made no findings on the underlying merits.
In December 2017, Waratek Limited’s shareholders passed resolutions directing the company to treat the purported transfer as null and void. The plaintiffs seek a declaration that the merger is binding and other relief. The defendants seek a declaration that it was void or unenforceable, along with damages and other remedies. These are claims and counterclaims, not findings in this ruling.
On security for costs, the judge said the defendants had produced evidence supporting an arguable defence to the merger claim. He also found that the plaintiffs would be unable to meet an adverse costs award if unsuccessful. The plaintiffs argued that their financial position resulted from the defendants’ alleged avoidance of the merger. The judge considered their position immediately before the December 2017 actions, assuming for that purpose that the merger had been implemented. But he found no evidence that the plaintiffs then had the cash or liquid resources to meet substantial costs. A cited $28 million valuation reflected an enterprise or shareholding value and did not establish an ability to pay legal costs.
The court therefore declined to accept the plaintiffs’ claimed special circumstance and ordered security for costs. It will hear the parties further on the amount. The ruling does not resolve the claims or counterclaims for trial.