Ahren's Engineering P/L v Welding Industries Ltd & Hyundai Welding Coltd No. DCCIV-20-1665

[2001] SADC 186

AHREN'S ENGINEERING PTY LTD v WELDING INDUSTRIES LTD and HYUNDAI WELDING CO LTD
[2001] SADC 186

Chief Judge Worthington
Civil

1. This is an appeal from the order of a Master.  On an interlocutory application by the third party, the Master set aside an order for substituted service, but reserved the question of costs to the trial judge.

2. The plaintiff, Ahren’s Engineering Pty Ltd, was involved in building works on the Hindmarsh Island Bridge.  It contracted with the defendant, Welding Industries Ltd, for it to supply welding wire.  The plaintiff claims that the material supplied by the defendant was defective, and that it suffered loss because of the increased cost of replacing that wire and delay.  The defendant says that the third party, Hyundai Welding Co Ltd, supplied the wire originally and that it was not up to standard.  Therefore, the defendant seeks indemnity from the third party for any damages it may be found liable to pay to the plaintiff.

3. The registered office of the third party is in Seoul, Korea.  Prior to the defendant joining the third party in this action, its solicitors, Kelly & Co, had correspondence about this matter with solicitors in Sydney, Minter Ellison, who advised that they were acting for Hyundai Welding Co of Australia (a business name). For present purposes, it is sufficient to say that, even though Minter Ellison named their client as Hyundai Welding Co of Australia, and not Hyundai Welding Co Ltd (the third party), the tone of the correspondence did not distinguish between these two organizations, and, indeed, there were references by Minter Ellison in that correspondence to it being “our client’s wire” that was the subject of the action.

4. When time came to join the third party, the defendant applied for, and obtained, an order for substituted service of the third party proceedings  on Minter Ellison, Sydney.  The third party was successful in having that order set aside and, therefore, it was necessary for the proceedings to be served on the third party in Korea in accordance with Rule19 because there is a Convention between Australia and Korea.  The third party has been represented throughout by Minter Ellison.

5. In giving reasons for his decision on 10 October 2001, the Master said that there was evidence of a trading relationship that involved Hyundai Welding Co of Australia, Welding Industries of Australia, Hyundai Welding & Metal Co of Korea and the third party.  He said at paragraph 82:

   Although there are many unanswered questions about the relationship between the third party, the business name and Hyundai Welding & Metal Co Ltd which have not been adequately dealt with in the affidavits, the fact is that an order for substituted service should not have been made until the defendant was able to demonstrate that attempts at service on the third party in Korea were either impossible or futile and had been attempted.

6. The Master said he would hear the parties on costs and indicated that he would not consider making an order for costs in favour of the third party until “an adequate explanation” had been given about the relationship between the parties to which he had referred earlier.  When the question of costs came on for hearing, the third party elected not to proffer any explanation about these matters.  In reasons delivered on 15 October 2001, having referred to the third party’s choice not to explain the relationship, the Master said (par. 21-23):

   The third party has made their submissions knowing my view.  The third party says those factors are irrelevant.  In my view, they are very relevant to the issue of costs.  The technical position adopted by the third party may well have been a complete waste of time, the party’s costs and the court’s resources in all the circumstances.

   I cannot determine the costs issue without the benefit of the material requested. .............

   I expect the information will come out during the hearing of the dispute which will go directly to the involvement of Hyundai Industry Co Australia (sic) and the third party, and which will impact on the exercise of the discretion on costs.

7. The Master reserved the question of costs to the trial judge and that is the order against which the third party appeals.

8. Subject to certain exceptions which are not relevant here, costs are in the discretion of the court [District Court Act, s42(1)], the court may deal with costs at any stage of the proceedings [Rule 101.01(4)], and costs follow the event unless the court otherwise orders [Rule 101.02(1)].  The well established guiding principle is “that the general discretion is absolute and unfettered except that it must be exercised judicially, not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation.”  (Cretazzo v Lombardi (1975) 13 SASR 4 per Bray CJ at 11).

9. The third party submits that as it succeeded on the application to set aside the order for substituted service, there can be no question of it not obtaining an order for costs, and that, therefore, the Master should have dealt with it at the time and made the order in its favour.  The third party says that it was entitled to insist on service pursuant to Rule 19, that the order for substituted service should never have been applied for, or granted, and that these other matters play no part.   In essence, the third party says that the matters the Master wanted explained were irrelevant to its application for costs. The third party acknowledges that it still has the opportunity to have its application for costs decided by the trial judge, but says that it is prejudiced because it is entitled to have that question determined now. 

10. To succeed in its appeal, the third party must show that the Master erred in the exercise of his discretion.  The third party says that there was such an error because he took into account material that was entirely extraneous.  I cannot accept that submission.

11. Costs do not necessarily follow the event; there is a discretion.  In deciding whether a successful party should have costs, it is relevant for a court to consider whether that party has, in light of all the circumstances, put other parties to unnecessary or unreasonable expense in the way it has conducted the proceedings. The Master accepted that the third party was entitled to insist on direct service in Korea pursuant to the Rules.  However, he was concerned that its insistence upon service under the Rules rather than, say,  Minter Ellison agreeing to accept service on its behalf,  whilst technically correct, may be shown at the end of the day to have been the waste of resources  he described.  In my opinion, he was entitled to have regard to that concern for the purpose of ruling on costs.  It is likely that the matters which the Master sought to have explained will become evident later in the proceedings, probably at trial. Their  relevance  will be a matter for the trial judge.

12. It follows that it cannot be said that the Master erred in regarding these matters as being relevant to the exercise of the discretion, or in reserving the question of costs for later consideration when the information is more likely to be available.

13. For these reasons the appeal is dismissed.