Adsett v Berlouis
[1992] FCA 368
•05 JUNE 1992
Re: EVERETT THOMSON BENT
And: DONALD EDWARD GOUGH and PATRICIA SUSAN GOUGH
No. V G215 of 1991
FED No. 368
Costs
(1992) 108 ALR 131
(1992) 36 FCR 204
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Black C.J.(1), Northrop(2) and Ryan(2) JJ.
CATCHWORDS
Costs - Jurisdiction - Persons not parties to proceedings - power to order costs personally against liquidator of petitioning creditor - Sections 32, 35A Bankruptcy Act 1966 - scope of s.32 Bankruptcy Act 1966 - cf s.27 Bankruptcy Act 1924 - implied limitations to power - when discretion to order costs against a non-party should be exercised - relevance of various considerations - whether appropriate to exercise discretion against a liquidator non- party - appropriateness of drawing analogy between receiver and liquidator - liquidator's perception of factual situation and likely outcome of litigation - liquidator's failure to obtain an indemnity against costs of litigation - respondent's failure to seek security for costs - order expressly empowering liquidator to bring proceedings - extent of duty on judge to identify considerations affecting exercise of discretion.
Bankruptcy Act 1966: s32; s35A.
Re Hodby: Ex parte Kenny (1987) 77 ALR 118.
Re Garofano: Ex parte American Express International Inc. (1990) 26 FCR 592.
John Fairfax and Sons Pty Ltd v E.C. de Witt and Co (Australia) Pty Ltd (1958) 1 QB 323.
Burns Philp and Co Ltd v Priestly and Morris (unreported, Full Court of Supreme Court of Victoria, 31 January 1992).
Bischof v Adams (unreported, Supreme Court of Victoria, Gobbo J, 24 April 1992).
Re Wilson Lovatt and Sons Ltd (1977) 1 All ER 274.
Egankarra Pty Ltd v Vince (1990) 2 ACSR 463.
Aiden Shipping Co Ltd v Interbulk Ltd (1986) 1 AC 965.
Forest Pty Ltd (Receivers and Managers appointed) v Keen Bay Pty Ltd (1991) 4 ACSR 107.
House v R (1936) 55 CLR 499.
Re Land and Property Co plc (No 3) (1991) 3 All ER 409.
Australian Coal and Shale Employees' Federation v Commonwealth (1953) 94 CLR 621.
HEARING
MELBOURNE
#DATE 5:6:1992
Counsel for the Appellant: Mr R. Boaden
Solicitor for the Appellant: J.M. Smith and Emmerton
Counsel for the Respondents: Dr I. Hardingham
Solicitor for the Respondents: Corrs Chambers Westgarth
ORDER
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay the respondents' costs of this appeal.
Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.
JUDGE1
This is an appeal from an order for costs made against a non-party, the liquidator of the petitioning creditor in a bankruptcy proceeding. The order was made by Fogarty J, a judge of the Family Court of Australia, in a proceeding transferred to the Family Court by an order made by this Court pursuant to s.35A of the Bankruptcy Act 1966. Section 35A was introduced into the Bankruptcy Act by the Family Court of Australia (Additional Jurisdiction and Exercise of Powers) Act 1988; the section enables the transfer of a bankruptcy proceeding pending in this Court to the Family Court, it confers jurisdiction upon the Family Court to hear and determine a transferred proceeding, and it confers upon the Family Court the power to make such orders as the Federal Court could have made in the proceeding.
On 18 December 1987 the Supreme Court of Victoria appointed the appellant, Mr Bent, provisional liquidator of European Capital Markets Corporation Ltd ("ECM"), a company incorporated under the laws of Antigua and Barbados. Mr Bent is an accountant. ECM had never been registered as a foreign company in Australia although it carried on business in Australia at least between 1986 and 1987. Fogarty J found that the sole director of ECM lived in Hong Kong and that its incorporation overseas and its subsequent dealings in Australia were the concepts of three people, Messrs Holt, Thomson and Cameron who, he said, might broadly be described as its promoters or managers in Australia.
When the Supreme Court appointed Mr Bent provisional liquidator of ECM it also made an order empowering the liquidator to bring in the name of and on behalf of the company "any legal proceeding, including any proceeding under the Bankruptcy Act 1966" against Donald Edward Gough and Patricia Susan Gough, the respondents to this appeal.
On 12 January 1988, ECM filed a petition in this Court for the sequestration of the estates of the respondents. On 24 February 1988 an order was made by the Supreme Court of Victoria that ECM be wound up and Mr Bent was appointed liquidator.
The proceeding instituted by the bankruptcy petition, having been transferred to the Family Court, came on for hearing before Fogarty J in February 1989. The petition, as amended, alleged that the debtors were indebted to ECM in an amount of approximately $2,500,000 for money had and received by the debtors to the use of ECM between October 1986 and July 1987. The act of bankruptcy relied upon was a preferential payment said to have been made by the debtors: Bankruptcy Act, s.40(1)(b). No action had at any time been taken by ECM to obtain judgment for the alleged debt.
The evidence on the hearing of the petition centred largely around the nature of the commercial relationship between ECM and the debtors and whether the debtors were indebted to ECM in the amount alleged or at all. A critical issue was whether ECM was entitled to the return of all capital sums invested by it with the respondents, irrespective of whether losses were incurred in the operation of a betting system to which the funds were to be applied. There were also issues whether any arrangement between those involved was illegal as being in breach of the Lotteries Gaming and Betting Act 1966 (Vic) or the Racing Act 1958 (Vic) or both. The evidence revealed that Mr Gough conducted a betting system and had been paid money by or through ECM for investment in that system. The money came from Messrs Cameron, Thomson and Holt and from others introduced by those three. Those other persons apparently believed that they were engaged in some sort of overseas investment. Fogarty J found that for most of the life of the scheme the outside investors did not know that the investment involved a betting scheme or the identity of Mr and Mrs Gough, and that Mr and Mrs Gough were not aware that anyone other than Mr Cameron (and possibly Mr Holt and a Mr Thomson) was investing in the scheme.
Fogarty J concluded that if there was an agreement between ECM and Mr and Mrs Gough it was not a term of it that the sums invested would be repaid by the Goughs to ECM in any event and that, accordingly, the petitioner had failed to prove the alleged debt. The petition was therefore dismissed.
His Honour ordered that the costs of the debtors, including any reserved costs, be taxed and paid by the petitioning creditor, ECM. The costs were taxed in June 1990 at $37,682.40. The solicitors for Mr and Mrs Gough then sought payment of that amount but they were later informed that the liquidator was without funds with which to pay. The matter was then re-listed before Fogarty J on an application by Mr and Mrs Gough to substitute for the original order for the payment of costs an order that the costs of the respondents be taxed and paid by the liquidator of the petitioning creditor, the appellant Mr Bent. It was not contended that Fogarty J lacked power to reconsider his earlier order for costs, no doubt because of events that had occurred at the time of the making of the original order and to which it is not necessary to refer here, but it was argued that the judge had no power to make an order for costs against a person who was not a party to the proceedings. In any event, it was said, there was no power to make such an order against a liquidator personally in a proceeding instituted in the name of the company.
After hearing argument and receiving evidence on affidavit, Fogarty J concluded that he did have power to make an order for costs against the liquidator personally and that, as a matter of discretion, the power should be exercised in favour of the present respondents. Accordingly, he ordered that there should be substituted for the original order for costs an order in the following terms:
"That the costs of the debtors, including any reserved costs, be taxed by the Registrar and be paid by the liquidator of the petitioning creditor, Mr Everett Thomson Bent."
It is from that order that the present appeal is brought. There was no appeal from the order dismissing the petition and the appellant abandoned a ground of appeal by which it was contended that the appellant had not had proper notice and had not had an opportunity to be heard or to adduce evidence on the question of costs.
The first ground in the appellant's notice of appeal was, in substance, that Fogarty J was wrong in determining that he had power under ss.32 and 35A of the Bankruptcy Act 1966 to make an order for costs against the appellant, a person who was not a party to the proceeding. On the hearing of this appeal, however, counsel for the appellant accepted that s.32 conferred power to make an order for costs against a non-party, but he argued that a liquidator was in a special position and that it was not appropriate to exercise a discretion to award costs against a liquidator non-party except, perhaps, in extreme or unusual circumstances which, he contended, were not present in this case.
Although the argument before us on the appeal focused upon considerations affecting the exercise of the power rather than upon its existence, I think it desirable, having regard to the importance of the question and to observations that have been made by members of this Court about s.32, to examine the scope of the section.
It should be noted at the outset that the language of s.32 is very wide. The section provides<:
"The Court may, in any proceedings before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit."
Section 32 is in the terms proposed in the draft Bill prepared to give effect to the recommendations of the Report of the Committee appointed by the Attorney-General of the Commonwealth to review the Bankruptcy Law of the Commonwealth, of which the Honourable Sir Thomas Clyne, Federal Judge in Bankruptcy, was Chairman. The draft Bill appears as the Third Schedule to the Committee's report.
Section 27(1) of the earlier Act, the Bankruptcy Act 1924, conferred power to award costs in the following terms:
"(1) In any proceeding under this Act the Court may, in its discretion award costs, either out of the estate of the bankrupt or against any person or persons as it thinks just."
Section 27(2) dealt with procedural matters and most of its provisions now appear in s.33(1) of the Bankruptcy Act 1966.
The words "against any person or persons" do not of course appear in s.32 of the 1966 Act. Their presence in s.27(1) of the 1924 Act may, perhaps, be explained simply by the conferral, in the earlier provision, of an express power to award costs out of the estate of the bankrupt. On this basis, nothing would turn upon the omission of an express reference to an award of costs "against any person or persons" in s.32 of the present Act. The report of Sir Thomas Clyne's committee gives no indication of the reason for the change. What is clear, however, is that s.32 was drawn in the widest terms and I see no reason to suppose that it was intended to cut down, in this respect, the powers that were conferred by the 1924 Act; on the contrary, a power to make such orders as to costs as the court thinks fit is, in my view, at least as wide as a power to "award costs, either out of the estate or against any person or persons as it (the Court) thinks just."
The scope of s.32 was referred to briefly by Fisher J in Re Hodby: Ex parte Kenny (1987) 77 ALR 118. In considering whether there was power to order that a creditor furnish security for costs, his Honour rejected a submission that jurisdiction to award security was conferred by s.32. He said (at 120):
"I cannot accept this contention, as the section is undoubtedly directed only to the making of orders for costs to be paid by or in favour of parties to the proceedings. It has no application to order security for costs."
In re Garofano: Ex parte American Express International Inc (1990) 26 FCR 592, Einfeld J, in reliance upon s.32, ordered a solicitor, who had purported to act for the debtor when in fact he had no instructions from the debtor but only from the debtor's father, to pay part of the petitioning creditor's costs. His Honour referred to the passage I have cited from the judgment of Fisher J in Re Hodby but noted that Re Hodby dealt with an order for security for costs, not an order for costs and that the reference Fisher J made to s.32 was made only in passing. Einfeld J considered that a power to order costs against a solicitor was well able to be fitted within the scheme envisaged by s.32 but left open the question whether the section also empowered the Court to award costs against non-parties generally. A power to award costs against a solicitor personally does of course involve special considerations and is well established.
Central to a consideration of the power to award costs against a non-party is the decision of the House of Lords in Aiden Shipping Co. Ltd. v Interbulk Ltd. (1986) 1 AC 965 in which their Lordships overruled earlier authority in the Court of Appeal and held that the discretionary power to award costs conferred by s.51(1) of the Supreme Court Act 1981 was not subject to any implied limitation to the effect that costs could only be ordered to be paid by a party to the proceedings. Section 51(1) provided:
"Subject to the provisions of this or any other Act and to rules of court, the costs of and incidental to all proceedings in the civil division of the Court of Appeal and in the High Court, including the administration of estates and trusts, shall be in the discretion of the court, and the court shall have full power to determine by whom and to what extent the costs are to be paid."
There are obvious differences in language between s.51(1) of the Supreme Court Act 1981 and s.32 of the Bankruptcy Act 1966 and the words "full power to determine by whom ... the costs are to be paid" do not appear in s.32. Although Lord Goff of Chieveley, with whom the other members of the House agreed, emphasised the words "by whom" in one passage in his speech (at 975), the decision in Aiden Shipping did not, in my view, turn on the presence of those words or upon the power to make rules of court in relation to costs. Nor do I consider that the definition of "party" in the Supreme Court Act 1981 provides any basis for distinguishing Aiden Shipping; the width of that definition was noted (at 979) to show, amongst other things, that it did not provide an apt criterion upon which to found a limitation upon the jurisdiction to award costs. The issue in Aiden Shipping was whether, despite the broad language of s.51(1), there was to be implied a limitation upon the persons by whom costs could be ordered to be paid (at 979, 980). Having referred to the judgment of Parker L.J. in John Fairfax and Sons Pty. Ltd. v E.C. de Witt and Co. (Australia) Pty. Ltd. (1958) 1 QB 323, in which his Lordship said that the implied limitation was capable of producing a result that was contrary to "the interests of justice", Lord Goff said (at 979):
"It is strange that courts should think it right to impose, by way of implication, a limit upon a wide statutory jurisdiction which is productive of that result."
Exactly the same may be said to reject any implied limitation upon the wide terms of s.32 of the Bankruptcy Act 1966. I see no reason to conclude that bankruptcy proceedings are different, for these purposes, from any other proceedings.
Aiden Shipping has been applied in Australia. In Forest Pty. Ltd. v Keen Bay Pty. Ltd. (1990) 4 ACSR 107, a decision of the Full Court of the Supreme Court of Queensland, it was argued that the decision in Aiden Shipping was based upon a statutory provision which had not been adopted in Queensland and that s.58 of the Supreme Court Act 1867 (Qld) did not have the effect, as did the English legislation, of extending the jurisdiction of the court to award costs against persons who were not parties. Section 58 of the Supreme Court Act 1867 (Qld) provides:
"The Supreme Court shall have power to award costs in all cases lawfully brought before it and not provided for otherwise than by this section."
The argument was rejected and all the members of the court held that there was a discretion to award costs against a non-party, although Dowsett J dissented in the result. Having referred to the English legislation, Ryan J said (at 115):
"The discretionary power is conferred in the widest terms. There seems to be no good reason for thinking that the legislature intended that it should be fettered by importing a limitation which could work injustice, as the statement by Abinger C.B. in Hayward v Gifford which I have quoted makes plain could occur. It should, on the contrary, be concluded that the legislature, having conferred unfettered discretion on the court, left it to the court to determine the principles upon which the discretion should be exercised."
I should add that I do not consider that Forest Pty. Ltd. v Keen Bay Pty. Ltd. turned upon the history of the Queensland legislation.
More recently, in Burns Philp and Co. Ltd. v Priestly and Morris (unreported, judgment delivered 31 January 1992) the Full Court of the Supreme Court of Victoria considered that it should apply Aiden Shipping and rejected the argument that s.24(1) of the Supreme Court Act 1986 (Vic.), which is in substantially similar terms to s.51(1) of the Supreme Court Act 1981, was subject to any implied limitation. See also Bischof v Adams (unreported, judgment delivered 24 April 1992) in which the Supreme Court of Victoria (Gobbo J) awarded costs against a non-party.
In my view, therefore, there is no reason to imply any general limitation upon the wide language of s.32 of the Bankruptcy Act so as to exclude the power to award costs against a non-party.
Before the decision of the House of Lords in Aiden Shipping it was accepted that costs could not be ordered against the liquidator personally where he did not sue or defend in his own name. In Re Wilson Lovatt and Sons Ltd. (1977) 1 All ER 274 at 278 Oliver J (as his Lordship then was) quoting with approval from Buckley on the Companies Act 13th Edn pp 517, 518 said:
"Under the present Act, when the liquidator does not sue or defend in his own name but in that of the company, there is no jurisdiction to order the liquidator, who is not a party litigant, to pay costs, any more than directors of a going company could be ordered to pay costs. The adverse litigant, if he be the defendant, should apply for security for costs ...".
See also Fraser v The Province of Brescia Steam Tramways Co. (1887 ) 56 LT 771 at 773 per Kekewich J.
In Egankarra Pty. Ltd. v Vince (1990) 2 ACSR 463 at 467 Fullagar J referred to the passage I have cited from the judgement of Oliver J in Re Wilson Lovett and Sons Ltd. and held that, leaving aside the provisions of the Companies (Victoria) Code, he had no jurisdiction to order that costs be paid by the liquidator personally. However, his Honour was evidently not referred to Aiden Shipping and it is clear that the earlier cases were decided in accordance with a general rule that, except where a case came within a special category or perhaps where the circumstances were otherwise exceptional, costs could not or would not be ordered against a person who was not a party. When the decision of the House of Lords in Aiden Shipping showed that there was no implied limitation that prevented a court from awarding costs against a non-party, the foundation was removed for such of those decisions as came after the enactment of the modern statutory provisions giving a broad power to award costs.
A liquidator was not, as such, protected against an order for costs. Costs could be awarded against a liquidator when he was a party to a proceeding. Moreover, in Egankarra Pty. Ltd. v Vince, Fullagar J considered that he did have a discretion under s.377(5) or under s.420 of the Companies (Victoria) Code to order that the liquidator pay costs personally (see at 467, 468), although he concluded that he should exercise his discretion against making the liquidator pay personally any of the costs of three abortive applications to wind up the company. Sections 377(5) and 420(1)(b) of the Code have their counterparts in ss.477(6) and 536(1)(b) of the Corporations Law.
The width of the discretion to award costs against a non-party in a proceeding brought by a company is illustrated by Re Land and Property Co plc (No. 3) (1991) 3 All ER 409 where the directors of a company were personally ordered to pay the costs of an unsuccessful petition to have an administrator appointed. The circumstances were most exceptional but the Court of Appeal, whilst holding that the directors had a right of appeal against the costs order, did not doubt the existence of the power. Nicholls L.J., with whom Lord Donaldson MR agreed, said that the judge: "undoubtedly had jurisdiction under s.51(1) to make the costs order against the directors in respect of the costs incurred by the creditors opposing petitions presented by the companies, even though the directors were not themselves parties to the petitions."
Although the special position of a liquidator will obviously be very relevant to the exercise of the discretion to order the payment of costs, I do not think it can now be said that, as a matter of power, an order for costs cannot be made against a liquidator personally. There is no reason to imply any special limitation upon the wide power conferred by s.32.
I consider, therefore, that the learned primary judge was correct in concluding that he had power to order that the liquidator pay the costs personally although not a party to the proceeding. I turn then to the exercise of his Honour's discretion.
The passages in the reasons for judgment of the primary judge in which his Honour discussed the considerations affecting the exercise of his discretion have been set out in the reasons for judgment prepared by Northrop and Ryan JJ. which I have had the advantage of reading.
I would draw attention to some other matters to which Fogarty J referred, relating to the appointment of the liquidator and the filing of the bankruptcy petition. Fogarty J found that Mr Bent was involved in advising the promoters from immediately after it became apparent to them that the funds provided to Mr Gough had been lost and that it was upon Mr Bent's advice that it was decided to move immediately to the liquidation of the company and the filing of the bankruptcy petition. The problem faced by the promoters was that having procured the incorporation of a foreign company, they had in the circumstances so distanced themselves from it that they found it impossible to give instructions in the name of the company for the institution of bankruptcy proceedings. Accordingly, as appeared from an affidavit of one of the promoters upon which Fogarty J relied, Mr Bent referred the promoters to solicitors and the promoters were advised to take whatever steps were possible to bring about the winding up of ECM as a foreign company which ought to have been registered as a foreign company in Victoria. Thus Mr Bent came to be appointed as provisional liquidator of ECM.
It should also be noted that, as well as having advised the promoters in a professional capacity and then having been in control of the proceeding as liquidator, Mr Bent took an active part in the proceedings as a witness.
In his careful argument, counsel for the appellant emphasised the special position and the duties of an official liquidator and the undesirability of liquidators being deterred in the performance of their important functions by the prospect of a personal liability for costs. The special position of a liquidator is undoubtedly a matter that ought to be given substantial weight when consideration is being given to an order that a liquidator pay costs personally, although it must be borne in mind that the circumstances in which a liquidator is appointed, can vary greatly from case to case.
In my view, it has not been shown that Fogarty J was in error in the way in which he dealt with these important matters. His Honour noted that the circumstances where a person who is not a party is ordered to pay costs need to be "exceptional or unusual and of a compelling nature (or) power" and his Honour added:
"This is particularly so in a case such as this where the liquidator initiated the proceedings in his capacity as liquidator, a capacity which carries with it the connotations of an officer of the court and a person carrying out a public duty."
Later his Honour said:
"It would not be in the interests of justice if liquidators were discouraged from performing their largely public duty and duty as officers of the Court in taking curial proceedings because of the risk of having to bear personally the costs if the litigation proved unsuccessful."
His Honour's reference to "unusual" circumstances was not a reference to circumstances that were merely unusual and not otherwise compelling. He expressly referred to the need for the circumstances to be of a compelling nature and I think it clear that his discretion was exercised on that basis. In the great majority of cases it would no doubt not be right to order a liquidator who is not a party to pay costs personally but I agree with Northrop and Ryan JJ. that it has not been shown that the discretion to order the payment of costs by the liquidator personally in this case has miscarried.
I would therefore dismiss the appeal with costs.
JUDGE2
This appeal raises first a question as to the power of this Court to order a person, not being a party to litigation, to pay personally the costs of the successful party in the litigation.
The appellant, Mr Bent, was, on 18 December 1987, appointed provisional liquidator of European Capital Markets Corporation Ltd ("ECM"). On 12 January 1988, a petition was presented to this Court under the Bankruptcy Act 1966 seeking sequestration orders against the estates of Donald Edward Gough and Patricia Susan Gough. The petitioning creditor was named as "European Capital Markets Corporation Ltd (provisional liquidator appointed)". We note in passing that on 24 February 1988 an order was made by the Supreme Court of Victoria that ECM be wound up and that the appellant, Mr Bent, be appointed liquidator.
On 9 December 1988, an order was made pursuant to the Family Court of Australia (Additional Jurisdiction and Exercise of Powers) Act 1988, transferring the bankruptcy proceedings to the Family Court. They were there heard by Fogarty J. who on 14 March 1989 made an order dismissing the petition and ordered that "the costs of the debtors, including any reserved costs, be taxed by the Registrar and paid by the petitioning creditor (European Capital Markets Corporation Ltd (in Liquidation))". Subsequently, an application was made to his Honour to vary his order as to costs by providing that the liquidator should pay the costs personally. After hearing argument and receiving evidence on affidavit, his Honour acceded to that application and ordered that there be substituted for paragraph 2 of his orders of 14 March 1989, an order in the following terms:
"That the costs of the debtors, including any reserved costs, be taxed by the Registrar and be paid by the liquidator of the creditor, Mr Everett Thomson Bent."His Honour reviewed the authorities, to most of which this Full Court has been taken, and concluded that he had power to make an order for costs against the liquidator personally. He then went on to consider whether, as a matter of discretion, that power should be exercised in favour of the debtors who are the respondents to the present appeal.
The first ground of appeal against the learned trial judge's second order as to costs is that he erred in law in determining that he had power under ss.32 and 35A of the Bankruptcy Act 1966 to make an order for costs against the appellant, he being a person who was not a party to the proceeding instituted by creditor's petition. Section 32 provides:
"The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit."
So far as relevant, s.35A stipulates:
"(1) Subject to subsection (2), where a proceeding is pending in the Federal Court, the Federal Court may, on the application of a party to the proceeding or of its own motion, transfer the proceeding to the Family Court.
...
(3) Subject to subsection (4), where a proceeding is transferred
to the Family Court:
(a) the Family Court has jurisdiction to hear and determine the proceeding;
(b) the Family Court also has jurisdiction to hear and determine matters not otherwise within its jurisdiction (whether by virtue of paragraph (a) or otherwise):
(i) that are associated with matters arising in the proceeding; or
(ii) that, apart from subsection 32(1) of the Federal Court of Australia Act 1976, the Federal Court would have had jurisdiction to hear and determine in the proceeding;
(c) the Family Court may, in and in relation to the proceeding:
(i) grant such remedies;
(ii) make orders of such kinds; and
(iii) issue, and direct the issue of, writs of such kinds; as the Federal Court could have granted, made, issued or directed the issue of, as the case may be, in and in relation to the proceeding;
(d) remedies, orders and writs granted, made or issued by the Family Court in and in relation to the proceeding have effect, and may be enforced by the Family Court, as if they had been granted, made or issued by the Federal Court;
(e) appeals lie from judgments of the Family Court given in and in relation to the proceeding as if the judgments were judgments of the Federal Court constituted by a single Judge, and do not otherwise lie; and
(f) subject to paragraphs (a) to (e) (inclusive), this Act, the Federal Court of Australia Act 1976, the Rules of Court made under that Act, and other laws of the Commonwealth, apply in and in relation to the proceeding as if:
(i) a reference to the Federal Court (other than in the expression "the Court or a Judge") included a reference to the Family Court;
(ii) a reference to a Judge of the Federal Court (other than in the expression "the Court or a Judge") included a reference to a Family Court Judge;
(iii) a reference to the expression "the Court or a Judge" when used in relation to the Federal Court included a reference to a Family Court Judge sitting in Chambers;
(iv) a reference to a Registrar in Bankruptcy, a Deputy Registrar in Bankruptcy or a Registrar of the Federal Court included a reference to a Registrar of the Family Court; and
(v) any other necessary changes were made."
The starting point seems to be that in the absence of some legislative grant of power, there is, in general, no jurisdiction to order that a person who is not a party to litigation should pay in whole or part the costs of any party to that litigation. Thus, until recently, authorities suggested that jurisdiction to award costs of and incidental to proceedings was limited to the parties to the proceedings. This view is illustrated in the following cases which reflected the position in England and Australia. In Re Wilson Lovatt and Sons Ltd (1977) 1 All ER 274, Oliver J at 277 quoted with approval from Buckley on the Companies Act 13th Edn p 517. The passage from his Lordship's judgment is as follows:
"The liquidator's personal liability for costs of litigation must be regarded from two wholly different points of view: viz. (A) as between himself and an adverse litigant, and (B) as between himself and the estate. (I am of course concerned at the moment only with the position of (A).) (A) As regards the former, and first as regards actions which the liquidator prosecutes or defends in the name of the company. (That of course is not this case because these were applications by the liquidator, the fraudulent preference part of which could of course have been prosecuted in the name of the company.) Under the older Acts when the official manager sued or defended in his own name he was personally liable for costs, and if an action in which he was plaintiff was dismissed, the order as to costs as between him and the adverse litigant was a personal order against him: secus, where he was defendant. So where the motion of the official manager was refused with costs, the order was against him personally. The order was of course without prejudice to the official manager getting the costs out of the estate if the Judge who had the control of the winding up thought proper to give them. Under the present Act, when the liquidator does not sue or defend in his own name but in that of the company, there is no jurisdiction to order the liquidator who is not a party litigant to pay costs, any more than directors of a going company could be ordered to pay costs. The adverse litigant, if he be defendant, should apply for security for costs under s.447,post: and under proper circumstances, he may get payment of his costs in full on the principle stated on pp. 488-490, ante: if he be plaintiff he litigates of course at his own risk. (This is the pertinent passage for present purposes.) But secondly, as regards the proceedings in the liquidation which the liquidator takes in his own name the reasons given in the cases above referred to, and particularly in the judgment of Kindersley V.-C., in Consols Insurance Co. (Official Managers) v Wood (1865) 2 Drew and Sm 353, seem as applicable under the present as under the old Acts to shew that where the liquidator is applicant, i.e. is in a position equivalent to that of plaintiff, and fails, the proper order is, as between himself and the adverse litigant, that he do pay the costs, without prejudice to any application that, as between him and the estate, they be allowed out of the estate. This was the form of order adopted by Cairns, L.J., in Sichell's Case (1867) 3 Ch App 119. It is true that in Re Regent United Service Stores, Ex parte Bentley (1879) 12 Ch D 850, Fry, J., refused to make the order in that form, but the point was not argued. The fact is that in general the assets are sufficient, and an order for payment out of the estate is not objected to ... But if the proceeding be in the Court which has the control of the winding up the Judge may determine at once as between liquidator and estate whether to allow the costs out of the estate or not, and if he think proper so to allow them and the adverse litigant (there being sufficient assets) does not object, then commonly the order is for payment, not by the liquidator personally, but out of the estate."
A similar view was taken by Fullagar J in Egankarra Pty Ltd v Vince (1990) 2 ACSR 463 were his Honour observed, at 467:
"In the present case each of the unsuccessful applications was made by Galaska (in liq), that is to say the company in liquidation and not by the liquidator. That being so, there was, leaving aside the sections of the Code that I have referred to, no jurisdiction in the Master, and no jurisdiction in O'Bryan J, or myself, to order that the costs be paid by the liquidator personally. As Oliver J (as his Lordship then was) said in Re Wilson Lovatt and Sons Ltd (1977) All ER 274 at 278: "Under the present Act, when the liquidator does not sue or defend in his own name but in that of the company, there is no jurisdiction to order the liquidator, who is not a party litigant, to pay costs, any more than directors of a going company could be ordered to pay costs. The adverse litigant, if he be the defendant, should apply for security of costs ...
In my opinion, therefore, if there is jurisdiction in myself to order that the costs be paid by the liquidator personally of these finalised proceedings, it must be found in the Code, and I think the court ought in view of this dictum be reluctant to order in the present case payment by the liquidator personally."
His Honour seems implicitly to have regarded s.420 (1)(b) of the Companies (Vic) Code as conferring jurisdiction because he proceeded immediately after the passage which we have quoted to consider factors bearing on discretion which in the result he exercised against ordering the liquidator to pay personally the costs of the unsuccessful applications. Section 420(1) was in these terms:
"If -
(a) it appears to the Court or to the Commission that a liquidator has not faithfully performed or is not faithfully
performing his duties or has not observed or is not observing -
(i) a requirement of the Court; or
(ii) a requirement of this Code, of the regulations or of the rules; or
(b) a complaint is made to the Court or to the Commission by any
person with respect to the conduct of a liquidator in connection with the performance of his duties, the Court or the Commission, as the case may be, may inquire into the matter and, where the Court or the Commission so inquires, the Court may take such action as it think fit."
However, there has since been a change in approach in England which culminated with the House of Lords holding in Aiden Shipping Co Ltd v Interbulk Ltd (1986) 1 AC 965 that the statutory discretion conferred by s.51(1) of the Supreme Court Act 1981 (UK) with respect to costs was not confined to parties on the record of the action. In the speech of Lord Goff of Chievely with which the others of their Lordships agreed, it was observed at 975:
"It is, I consider, important to remember that section 51(1) of the Act of 1981 is concerned with the jurisdiction of the court to make orders as to costs. Furthermore, it is not to be forgotten that the jurisdiction conferred by the subsection is expressed to be subject to rules of court, as was the power conferred by section 5 of the Act of 1890. It is therefore open to the rule-making authority (now the Supreme Court Rule Committee) to make rules which control the exercise of the court's jurisdiction under section 51(1). In these circumstances, it is not surprising to find the jurisdiction conferred under section 51(1), like its predecessors, to be expressed in wide terms. The subsection simply provides that "the court shall have full power to determine by whom ... the costs are to be paid." Such a provision is consistent with a policy under which jurisdiction to exercise the relevant discretionary power is expressed in wide terms, thus ensuring that the court has, so far as possible, freedom of action, leaving it to the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court, and to the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised. Such a policy appears to me, I must confess, to be entirely sensible. It comes therefore as something of a surprise to discover that it has been suggested that any limitation should be held to be implied into the statutory provision which confers the relevant jurisdiction."
A similar approach to corresponding legislation has since been taken by the Full Court of the Supreme Court of Queensland in considering the propriety of an order that receivers personally pay the costs of unsuccessful litigation which they had maintained after their appointment; Forest Pty Ltd (Receivers and Managers appointed) v Keen Bay Pty Ltd (1991) 4 ACSR 107. In that case the Court adopted the opinion expressed in Aiden Shipping, namely that a costs order may, as a matter of jurisdiction, be made against a non-party.
In our view, s.32 of the Bankruptcy Act is not significantly different in form or effect from s.51(1) of the Supreme Court Act 1981 (UK) considered in Aiden's case nor from s.58 of the Supreme Court Act 1867 (Qld) considered in Forest's case.
By parity of reasoning we are led to conclude that the learned primary Judge was correct in regarding s.32 of the Bankruptcy Act as conferring a power, in the exercise of his discretion, to order the appellant personally to pay the debtor's costs of and incidental to the petition which had been dismissed. It is therefore necessary to consider whether that exercise of his Honour's discretion miscarried.
The considerations which influenced him to exercise the discretion as he did are set out as follows in his reasons for judgment:
"I turn then to the question whether the power should be exercised against the liquidator in this case. It is neither useful nor desirable to attempt to define the precise circumstances in which this power to order costs should be exercised against a non party. Nevertheless, I think it can be said that the consistent general approach has been that orders for costs are normally confined to the actual parties to the litigation and that the circumstances where a person who is not a party is ordered to do so need to be exceptional or unusual and of a compelling nature (or) power. This is particularly so in a case such as this where the liquidator initiated the proceedings in his capacity as liquidator, a capacity which carries with it the connotations of an officer of the court and a person carrying out a public duty. In this regard, the approach adopted by the Queensland Full Court in Forest's case is useful since there are some parallels between the position of a receiver on the one side and that of a liquidator on the other.
I have already referred briefly to the facts which gave rise to the filing of the bankruptcy petition. The affidavits of Mr Cameron demonstrate that the liquidator was involved in advising the promoters from immediately after it became apparent to them that the substantial funds apparently provided to Mr Gough had been lost and that it was upon the advice of the liquidator that it was decided to move immediately to the liquidation of the company and the filing of the bankruptcy petition. It must have been apparent to the liquidator that this was an unusual case and that issues of fact and credibility would loom large in any litigation. It also should have been clear to him that there was likely to be litigation on many fronts arising out of this collapsed scheme. It should have also been apparent that the success of the petition, based as it was upon the view that the Goughs were directly indebted to ECM, depended upon a number of difficult issues of fact and law. In relation to the facts, they largely turned upon the likelihood of acceptance of the evidence of the three promoters. Although the liquidator could not have had the advantage of knowing the doubts which I entertained about their evidence, nevertheless the factual situation was so unusual as to require circumspection. Further, there were obvious difficulties in any event on issues of law, primarily in establishing any contractual connection between the petitioning creditor and the debtors. Superimposed upon that remained the question whether the overall scheme was illegal as being in breach of the Victorian betting provisions. It should also have been obvious that the petition would be vigorously defended and that no compromise was likely. Consequently, substantial costs would be incurred in what could only be described as a hazardous piece of litigation. The letter of 22 November, 1990 from the liquidator's solicitors exhibited to the first affidavit of Mr Darvall refers to an apparent failure by the promoters or others to pay to the liquidator, Mr Bent, "pledged funds". No affidavit or other material was filed on behalf of Mr Bent to explain any of these matters or to influence the exercise of discretion. One is left to conclude that Mr Bent embarked upon these proceedings without having obtained funds from the promoters or other relevant persons. In my view to have done so was most imprudent. The three promoters had a significant interest in the outcome. It was most unwise of Mr Bent to have relied upon unfulfilled pledges and to embark upon expensive and hazardous litigation.
MacPherson on Liquidation, 3rd ed. at p 260 said: "If creditors or contributors insist on his (the liquidator) taking action in a doubtful case, he should refuse to proceed without first obtaining from them an indemnity against the cost of the action." (See also p 22l). The only argument advanced by Mr Bigmore regarding the exercise of discretion was that the debtors should have applied for security for costs, more especially so as they apparently became aware at some point of the contents of the exhibited affidavits of Mr Cameron. This issue was extensively considered in Forest's case. These orders for security had been made but they were insufficient to meet the final costs. As was pointed out in that case, whilst security for costs may represent one avenue of protection which a litigant may take, the practice of ordering a relatively modest amount by way of security and the likelihood that there will be a difference between the secured amount and the final costs if the matter goes to a protracted trial all suggest that this aspect, although a matter relevant to be taken into account in the exercise of discretion, is not decisive of the issue. It would not be in the interests of justice if liquidators were discouraged from performing their largely public duty and duty as officers of the Court in taking curial proceedings because of a risk of having to bear personally the costs if the litigation proved unsuccessful. However that is not the debtors' case here. The debtors' case is that the liquidator was never in funds, but pressed on with an expensive and hazardous action which ended in failure. Orders for costs are intended as an indemnity for the successful party and do not take on the nature of punishment of the other party: see Latoudis v Casey (1990) 65 ALJR 151. I do not consider that the fact that the original Supreme Court order authorised Mr Bent to institute these proceedings is significant; nor was that suggested by Mr Bigmore.
My assessment of this matter is that it is a strong case for ordering costs and that it would be a proper exercise of discretion to do so.
The approach which this Court should take to a review of that exercise of discretion is clearly indicated in the well-known passage from the judgment of the High Court in House v The King (1936) 55 CLR 499 where it was observed at 504:
"The manner which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some has been made in exercising the discretion. If the judge wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may excercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to excercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error overable, the exercise of the discretion the ground that a substantial wrong has in fact
In a helpful written submission, Mr Boaden of Counsel for the appellant reviewed the learned trial judge's exercise of discretion against the background of those principles as further explained by Kitto J in Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621 at 627.
It was first submitted that his Honour drew an inappropriate analogy between a receiver and a liquidator. However, in our view, in acknowledging that "some parallels" exist between the two offices, Fogarty J did not fall into error. The sentence immediately before the reference to those parallels makes it clear that his Honour was alert to the wider range of persons to whom a liquidator owes a duty.
It was next contended that there was an error in having regard to the fact that issues of fact and credibility would loom large in the litigation which the liquidator determined to pursue. Rather, it was said, "where a prima facie case exists the liquidator should be encouraged, rather than discouraged, in bringing recovery proceedings". We regard that submission as being dangerously close to erecting a rule which would deny the width of the discretion that we consider to be reposed in the courts in this area. A perception that a prima facie case exists depends on facts known to the liquidator at a given time. Accordingly, the discretion should be exercised having regard to the liquidator's conduct and actual or constructive knowledge over the whole period from institution of the proceedings until judgment. We consider that Fogarty J exercised his discretion in that way, and correctly did not allow his assessment of the circumstances as they existed from time to time to be distorted by a preconception that a liquidator should be encouraged to persist in litigation until judgment. That conclusion disposes also of Mr Boaden's contention that his Honour improperly took into account that "it should have been clear to the liquidator that there was likely to be litigation on many fronts arising out of the collapsed scheme". Likewise, we can detect no error in the related assessment, also attacked by Mr Boaden, that "the factual situation was so unusual as to require circumspection".
Mr Boaden then argued that it was irrelevant for his Honour to have taken into account that it "should have been obvious that the petition would be vigorously defended and that no compromise was likely". We accept, as Counsel for the appellant submitted, that a liquidator should not be deterred by an opponent's long purse and refusal to compromise from pursuing an action properly seen to be in the interests of the company's creditors or shareholders. However, we understand Fogarty J in this part of his judgment to have done no more than assess whether the institution or maintenance of the proceedings was hazardously speculative. We do not perceive any error in that approach. Nor, in the light of our conclusion that the assessment should be made as the litigation unfolds, do we consider that his Honour erred in characterizing it as "hazardous".
Counsel for the appellant then contended that the passage from McPherson on Liquidation at p 260 quoted by Fogarty J referred to the wisdom of a liquidator obtaining an indemnity against his own costs, not against his possible personal liability to pay costs to the other party. The actual passage from McPherson (3rd Edn) reads:
"If creditors or contributories insist upon his taking action in a doubtful case, he should refuse to proceed without first obtaining from them an indemnity against the costs of litigation." (emphasis added)."
The footnote to that passage refers to s.429(2) of the Companies Act which empowers the court to direct a liquidator to incur an expense on an indemnity from a creditor or contributory. We can find nothing in the passage or the footnote which limits it to the costs of conducting only the liquidator's side of litigation. By referring to the passage, Fogarty J was doing no more than identifying a counsel of prudence as a matter to be taken into account in deciding where a liability for the costs of a successful respondent should fall when recourse to a solvent petitioning creditor is not available.
Counsel for the appellant acknowledged that the learned primary Judge had regard to the facility available to the respondent to seek security for costs, but then appeared to suggest that it should have been conclusive against an exercise of discretion favourably to the respondent. We disagree. In our opinion, his Honour correctly identified the way in which the facility to seek security for costs was relevant to be taken into account in the exercise of his discretion.
It was also conceded on behalf of the appellant that Fogarty J correctly took into account the need not to discourage liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties. However, it was then said that the reference to Latoudis v Casey (1990) 65 ALJR 151 distracted attention from "the real issue". We do not understand his Honour to have given himself any direction other than that the discretion should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where the circumstances make it just or appropriate for the successful party to be indemnified against his or her costs. We regard that approach as unexceptionable.
It is true that the learned primary Judge did not view as significant the fact that the order of the Supreme Court of Victoria appointing the appellant as provisional liquidator of ECM expressly empowered him to bring the proceedings. The relevant part of the order was in these terms:
"Subject to further order, the provisional liquidator is empowered to bring in the name and on behalf of the company any legal proceeding, including any proceeding under the Bankruptcy Act 1966, against Donald Edward Gough and Patricia Gough of 2 Ferdinand Avenue, Balwyn North or either of them and further to exercise with respect to the company the powers conferred on a liquidator by sub-sections (b), (d), (e) and (k) of Section 377(2) of the Companies (Victoria) Code."
That order was obtained on the ex parte application of Mr Cameron and necessarily before the appellant, Mr Bent, had any opportunity to assess the likely outcome of the proceedings which he was thereby authorised to bring. In those circumstances the learned Senior Master who made the order could not conceivably be regarded as having turned his mind to whether the contemplated proceedings were likely to succeed, or as having considered that by making the order he was encouraging the provisional liquidator to pursue the bankruptcy petition to judgment. We therefore consider, with respect, that it was correct to regard the making of that order as not a significant factor in the exercise of the discretion under review.
Finally, it was suggested that his Honour failed to take into account that the proceedings were instituted and pursued by the liquidator in good faith and did not fail through any personal fault or neglect on his part. It is not incumbent on a judge exercising a discretion of this kind to identify in his reasons all of the considerations that weighed with him in reaching the result which he did. Unless good faith has been expressly negatived, an appeal court is entitled to treat it as having been presumed, as we consider it was in this case. It is true that in Egankarra Pty Ltd v Vince (supra) Fullagar J noted at 468, that the proceedings failed through no personal fault of the liquidator. However, that was a case far removed from the present because, as appears from the following passage from his Honour's judgment (also at 468), the liquidator's failure was prima facie attributable to procedural errors or omissions by the solicitors for the company in liquidation:
"As to the order of the Senior Master on the third of the ill fated winding up applications, it is said that the liquidator caused the company to bring the applications when there were no funds in the company with which to pay costs if the application failed. But it cannot be automatic, but must always be a matter for the exercise of a wide discretion, to award costs personally against a liquidator when he behaves in this fashion. The circumstances and probabilities at the time of the application fall to be considered. Upon the third application the liquidator was entitled to think that the application was virtually bound to succeed provided only that the legal practitioners managed to perform their professional duties with reasonable care. After the first two dismissals it was almost inconceivable that solicitors would fail to file the affidavits. No defence has been suggested to the claim that the $21,000 odd was at all material times owing by Egankarra to Galaska under the sale agreement indemnity, and I am presently unable to see any defence to that claim. The present application before me however is not for an order that some solicitor should pay the costs but that the liquidator should do so. In all the circumstances, including the past conduct of Galaska (in liq) and Egankarra with relation to the judgment debt, and including the fact that each company was the alter ego of Mr and Mrs Galaska, I have concluded that I should exercise my discretion against making the liquidator pay personally any of the costs. (In fairness to the solicitors, I should say that they have had no opportunity to be heard before me and I am doing no more than point to where the blame would, in my opinion, lie if the true facts consisted only of those that are now before me.)"
In the present case the petition failed because of the inability of the petitioning creditor to establish in accordance with the substantive law the alleged debt on which it was founded. The risk of such a failure, Fogarty J found, was, or should have been, present to the mind of the liquidator who had a pre-existing relationship of accountant and client with the individual sponsors of the bankruptcy petition. We can detect no error in that finding or in the use which his Honour made of it.
For these reasons we are not persuaded that the learned primary judge's exercise of discretion miscarried. Accordingly, we would dismiss the appeal.
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