Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd
[2011] NSWCA 128
•23 May 2011
Court of Appeal
Supreme Court
New South Wales
Medium Neutral Citation: Arena Management Pty Ltd (Receiver & Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128 Hearing dates: 25 March 2011 Decision date: 23 May 2011 Before: McColl JA at [1], Campbell JA at [2], Macfarlan JA at [131] Decision: (1) Declare that Randall Joubert was entitled to appeal as of right against the Costs Judgment, insofar as it held that he should bear personally the costs of the litigation in the court below.
(2) Direct that a Notice of Appeal, in the form of the draft Notice of Appeal contained in the White Book in this matter but modified by:
(a) removing Arena as an appellant and naming it as a respondent; and
(b) adding such ground of appeal concerning denial of procedural fairness in relation to the Costs Judgment as Mr Joubert might be advised;
be filed within 21 days from the date of delivery of this judgment
(3) Extend time for filing such a Notice of Appeal to 21 days from the date of delivery of this judgment.
(4) Costs of the application for leave to appeal in this matter to be costs in the appeal.
(5) Direct that the documents recording the extent of the parties' agreement on facts relevant to the proposed procedural fairness be included in the Red Book for the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised Court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: APPEAL - costs - right of appeal - jurisdiction of the Court of Appeal - Supreme Court Act 1970 s 101(2)(c) - whether leave to appeal required - whether an order that a liquidator pay the costs of the proceedings personally without a right of indemnification is an order "as to costs only"
APPEAL - costs - right of appeal - whether an order that a liquidator pay the costs of the proceedings personally without a right of indemnification is an order as to "costs ... which are in the discretion of the court" - where judge finds that trustee, executor or liquidator has committed misconduct in the performance of the office and denies the right of indemnity concerning costs, the order of the judge is not one as to "costs ... which are in the discretion of the court"
APPEAL - costs - right of appeal - whether the liquidator was a party or non-party in relation to various claims brought under a single originating process - general power of the court to make costs orders against parties and non-parties under Civil Procedure Act 2005 s 98 - whether an order that a non-party pay the costs of the proceedings is an order as to "costs ... which are in the discretion of the court"
CORPORATIONS - liquidators - costs - loss of right of indemnification - right of appeal - inherent power of the court of control over liquidators - Corporations Act ss 477(6), 536 - whether liquidator acted prudently and reasonably in prosecuting the proceedings
EXECUTORS - costs - loss of right of indemnification - right of appeal
TRUSTEES - costs - loss of right of indemnification - right of appeal
LEGAL PRACTITIONERS - costs - order that legal practitioner bear the costs of litigation personally - right of appealLegislation Cited: Administration of Justice Act 1840 (NSW)
Civil Procedure Act 2005 (NSW)
Common Law Procedure Act 1899 (NSW)
Companies (Winding-up) Act 1890 (UK)
Consolidated Equity Rules of 1902 (NSW)
Corporations Act 2001 (Cth)
Equity Act 1901 (NSW)
General Rules of Court (NSW)
Judicature Act 1873 (UK)
Supreme Court Act 1935 (WA)
Supreme Court Act 1970 (NSW)
Supreme Court Act 1981 (UK)
Supreme Court Act 1995 (Qld)
Supreme Court Procedure Act 1900 (NSW)
Supreme Court Rules (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Adsett v Berlouis (1992) 37 FCR 201
Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965
Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957
Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) v Campbell Street Theatre Pty Ltd (No 2) [2010] NSWSC 1230
BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2010] NSWSC 959; (2010) 79 ACSR 558
Burkett v Spray (1829) 1 Russ & My 113; 39 ER 44
Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280
Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226
Cotterell v Stratton (1872) LR 8 Ch App 295
Dasreef Pty Limited v Hawchar [2010] NSWCA 154
Dight v Gordon (1863) 3 SCR (Eq) 63
Dixon v Williams (1875) 13 SCR (Eq) 7 R 13
Donald Campbell & Co v Pollak [1927] AC 732
Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2003] QCA 516; [2004] 2 Qd R 11
Etna v Arif [1999] VSCA 99; [1999] 2 VR 353
Farrow v Austin (1881) 18 Ch D 58
Hood v Cullen (1885) 6 NSWLR (Eq) 22 (sub nom Hood v Lawler (1885) 1 WN (NSW) 117)
HPM Pty Ltd v Fear [2002] WASCA 249
Hypec Electronics Pty Ltd (in liq) v Mead [2004] NSWSC 731; (2004) 61 NSWLR 169
In re Beddoe; Downes v Cottam [1893] 1 Ch 547
In re Hoskin's Trusts (1877) 6 Ch D 281
In re John Tweddle & Co Ltd [1910] 2 KB 67
In re John Tweddle & Co Ltd [1910] 2 KB 697
In re Land and Property Trust Co plc [1991] 1 WLR 601
In re Sarah Knight's Will (1884) 26 Ch D 82
In re Silver Valley Mines (1882) 21 Ch D 381
Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75
Knight v Clifton [1971] Ch 700
Knight v FP Special Assets Ltd (1992) 174 CLR 178
Leicester v Walton (NSWCA, 22 November 1995, unreported)
Lillis v Davis (1884) 1 WN (NSW) 27
Macteldir Pty Ltd v Dimoski [2006] FCA 489; (2006) 152 FCR 487
Martinovic v Chief Executive, Qld Transport [2005] QCA 55; [2005] 1 Qd R 502
Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133; (2005) 23 ACLC 718
Michael v Freehill Hollingdale & Page (1990) 3 WAR 223
National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268
Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64
Re Bradford, Thursby and Farish (1883) 15 QBD 635 (sub nom In Re Milton (1884) 32 WR 238)
Re Golden Casket Art Union Office; [1995] 2 Qd R 346
Re J W Murphy and P C Allen; BPTC Ltd (1996) 19 ACSR 569
Re Pugh; Lewis v Pritchard (1888) 57 LT 858
Remely v O'Shea [2008] QCA 78
Road Chalets Pty Ltd v Thornton Motors Pty Ltd (1986) 47 SASR 532
Shadbolt v Wise [2005] QCA 443; [2006] 1 Qd R 553
Smirnios v Byrne [2007] VSC 513
Stevens v Metropolitan District Railway Company (1885) 29 Ch D 60
Taylor v Dowlen (1869) LR 4 Ch App 697
Theophanous v Gillespie [2002] QCA 117
Thompson v Fraser (Practice Note) [1986] 1 WLR 17
Turner v Hancock (1882) 20 Ch D 303
Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333
Wentworth v Wentworth [2000] NSWCA 350; (2001) 52 NSWLR 602
Wheeler v Somerfield [1966] 2 QB 94
Wilkinson v Kenny [1993] 1 WLR 963
Witt v Corcoran (1876) 2 Ch D 69Texts Cited: BH McPherson, The Law of Company Liquidation 4th ed (1999)
Daniell's Chancery Practice, 8th ed (1914)Category: Interlocutory applications Parties: Arena Management Pty Ltd (Administrator Appointed) (Receiver and Manager Appointed) (First Applicant)
Randall Joubert in his capacity as Administrator of Arena Management Pty Ltd (Administrator Appointed) (Receiver and Manager Appointed) (Second Applicant)
Campbell Street Theatre Pty Ltd (Respondent)Representation: Counsel
Mr G George (Applicants)
Mr S A Kerr SC; Mr R A Yezerski (Respondent)
Solicitors
Pateman Legal (Applicants)
Piper Alderman Lawyers (Respondent)
File Number(s): 2009/290258 Decision under appeal
- Citation:
- Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) & Anor v Campbell Street Theatre Pty Ltd (No 2) [2010] NSWSC 1230
- Date of Decision:
- 2010-10-26 00:00:00
- Before:
- Palmer J
- File Number(s):
- 2010/290258
Headnote
(This headnote does not form part of the Court's judgment)
Mr Randall Joubert is the liquidator of a company formerly known as Arena Management Pty Ltd. Campbell St Theatre Pty Ltd (" CST ") appointed receivers and managers to Arena pursuant to a Deed of Charge dated 20 August 2008.
Arena and Mr Joubert began proceedings claiming that the Charge was legally ineffective. These proceedings were dismissed.
There was a subsequent hearing as to costs. The trial judge found that Mr Joubert had not acted prudently and reasonably in commencing and prosecuting the proceedings and ordered that CST should be paid its costs on the indemnity basis and that Mr Joubert should pay those costs personally, without any right of indemnification from the assets of Arena. This order extended to the costs of the application for the liquidator to bear the costs personally and on the indemnity basis.
Arena and Mr Joubert sought leave to appeal from the costs judgment. Section 101(2)(c) Supreme Court Act1970 provides that leave to appeal is necessary from a judgment given or order made " as to costs only which are in the discretion of the court ". It was common ground that s 101(2)(c) was the only provision in s 101 which might possibly require that leave to appeal was necessary.
Held: (per Campbell JA, McColl and Macfarlan JJA agreeing)
(1) Status of the Liquidator
One group of claims in the proceedings invoked a jurisdiction conferred on the Court by the Corporations Act2001 (Cth). The liquidator was required to be the plaintiff in the proceedings insofar as he made the claims that invoked the statutory jurisdiction. [17]
The second group of claims in the proceedings relied upon rights that Arena claimed to have. While the liquidator was causing Arena to assert those claims, Arena was the proper plaintiff and the liquidator was in the position of a non-party. [18]
(2) Court's Power to Require Liquidators to Bear Costs Personally
The court has at least a limited inherent power over liquidators who are its officers. This power enables the court to require liquidators to bear the cost of litigation that they have instituted, or have been responsible for the company instituting. Further, ss 477(6) and 536 Corporations Act give the Court power to decide whether a liquidator (whether court-appointed or not) who is ordered to pay the costs of litigation that he has brought should be required to bear those costs and whether a liquidator who has caused a company to bring litigation in its own name should be required to bear those costs. The relevant considerations that guide the exercise of the powers under the Court's inherent jurisdiction and ss 477(6) and 536 include whether the expenditure was reasonably, as well as honestly, incurred. [28], [34], [40]
Section 98 Civil Procedure Act2005 confers a general power to make costs orders against parties and non-parties alike. Following the repeal of UCPR 42.3 (formerly Pt 52A r 4 Supreme Court Rules ), there is no specific provision restricting the making of costs orders against non-parties. [24]
(3) Whether the Order was an Order "as to Costs Only"
The order appealed from expressly provided that the liquidator was not to have a right of indemnity out of the assets of Arena. As a matter of construction of the order, it was not an order " as to costs only ". [46]
(4) Whether the Order was an Order "as to Costs ... which are in the Discretion of the Court"
Insofar as the costs order deprived the liquidator of indemnity concerning those costs that he would be personally liable to pay by reason of having lost the claims that he brought based on the statutory jurisdiction, it was not an order as to " costs ... which are in the discretion of the court ". This is because the order denying the liquidator's ordinary right of indemnity from the fund was (or legitimately could only have been) based upon a finding of misconduct on the part of the liquidator. [99]
This principle can also be seen in the cases relating to trustees; executors; persons charged with contempt who have been acquitted of the charge; and legal practitioners. [98]
Insofar as the costs order required the liquidator to pay the costs of those claims that he had caused Arena to make, the trial judge was exercising a particular power of the court to control the conduct of liquidators. The order was based on the finding that the conduct of the liquidator, in causing the company to bring claims in its own name, was deficient. Thus, insofar as it related to claims that the liquidator had caused Arena to bring in its own name, the trial judge's order was not one as to " costs ... which are in the discretion of the court ." [119]
(5) Right of Appeal for Non-Parties against whom Costs Orders Made
In the instant case it is not necessary to decide whether there is always a right to appeal when a costs order is made against a non-party. [118]-[119]
**********
Judgment
McCOLL JA: I have had the privilege of reading Justice Campbell's reasons in draft. I agree with those reasons and with the orders his Honour proposes.
CAMPBELL JA: Mr Randall Joubert is the liquidator of a company formerly known as Arena Management Pty Ltd (" Arena "). Campbell Street Theatre Pty Ltd (" CST ") has appointed receivers and managers to Arena pursuant to a Deed of Charge dated 20 August 2008.
Mr Joubert and Arena began proceedings in the Equity Division of the Supreme Court of New South Wales, seeking declarations that the primary judge has described as:
"- no money is owing by Arena to CST which is secured under the Charge;
- alternatively, the Charge is unenforceable for want of consideration;
- alternatively, the Charge is voidable under the general law or as an unfair preference or an uncommercial transaction or as a related entity transaction or as an unreasonable director-related transaction;
- alternatively, the Charge secures no more than $500,000 because stamp duty only to that amount has been paid."
Certain consequential relief was also sought, if any of the declarations were made.
The primary judge gave the first of the judgments presently relevant on 2 September 2010: Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 (" the Substantive Judgment "). The judge found, at [33], that the Charge secured $665,883. He rejected all the bases upon which Mr Joubert or Arena contended that the Charge was legally ineffective. Thus he dismissed the Amended Originating Process. He made no order as to costs at that time, but invited submissions on that topic.
After the judge had delivered the Substantive Judgment, CST made an application that it should be paid its costs on the indemnity basis, and that Mr Joubert should pay those costs personally, without any right of indemnification from the assets of Arena. The judge delivered judgment on that application on 26 October 2010 and made the orders that CST sought: Arena Management Pty Ltd (Admin App) (Rec & Mgrs App) v Campbell Street Theatre Pty Ltd (No 2)[2010] NSWSC 1230 (" the Costs Judgment ").
Arena and Mr Joubert have sought leave to appeal from the Costs Judgment. Neither an appeal, nor an application for leave to appeal, has been filed concerning the Substantive Judgment.
Section 101(2) Supreme Court Act 1970 (" SC Act ") now states:
"An appeal shall not lie to the Court of Appeal, except by leave of the Court of Appeal, from:
...
(c) a judgment given or order made in proceedings in the Court with the consent of the parties or as to costs only which are in the discretion of the Court"
Leave to appeal was sought because it was assumed that the Costs Judgment was of a type that fell within s 101(2)(c) SC Act , and thus an appeal could be brought from it only by leave.
It was common ground that s 101(2)(c) was the only provision in s 101 SC Act which might possibly require that leave to appeal be granted as a prerequisite to the liquidator appealing. In particular, it was common ground that the amount of costs claimed against the liquidator was substantially over $100,000, and hence that s 101(2)(r) SC Act did not apply.
Several days before the application for leave came on for hearing, the Court notified the parties that there was a preliminary question concerning whether the contemplated appeal fell within s 101(2)(c) SC Act . The Court heard argument on 25 March 2011 on both whether leave was necessary, and on whether, if it eventuated leave was necessary, that leave should be granted.
At the conclusion of the hearing the Court announced that it was satisfied that if leave were necessary it would be appropriate to grant it, but that it would reserve its decision on whether leave was necessary. No orders were made at that time, beyond granting permission for the parties to approach the Registrar for a hearing date.
The Basis for The Costs Orders Below
At [4] of the Costs Judgment the judge referred to a submission of Mr McInerney, counsel for CST in the court below, that the liquidator should bear the costs personally because he "did not act reasonably and prudently in bringing and prosecuting the proceedings so that the expenses incurred in the litigation were not 'properly incurred' in the liquidation." The judge recorded that Mr McInerney relied on the principles in Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133; (2005) 23 ACLC 718 at [11]-[13]. In those paragraphs, there was reference to the criteria that the Full Federal Court (Northcott, Wilcox and Cooper JJ) had held, in Adsett v Berlouis (1992) 37 FCR 201, should be applied in deciding whether a trustee in bankruptcy could recover from the bankrupt estate costs of litigation he had brought but lost. Those criteria were drawn from In re Beddoe ; Downes v Cottam [1893] 1 Ch 547 at 562 concerning the circumstances in which a trustee of a deceased estate was entitled to indemnity from the trust fund for expenses incurred for the benefit of the trust. Without seeking to be exhaustive, those criteria include that the expenses have been " reasonably as well as honestly incurred " , and that mere negligence, mistake or breach of trustee's duties can give rise to a denial of indemnity, even if there is no question of personal misconduct or wilful recklessness. At [13] in Mead v Watson the Court (Sheller, Ipp and Tobias JJA) quoted a passage from Adsett at 211-212 that included:
"If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not 'properly incurred'."
The question of whether leave to appeal was necessary when a liquidator sought to challenge an order that he bear personally the cost of certain proceedings did not arise in Mead v Watson , because it was assumed by all involved that leave to appeal was necessary, and it was granted.
The primary judge concluded at [27] of the Costs Judgment that, "for the reasons advanced by Mr McInerney, ... Mr Joubert did not act prudently and reasonably in commencing and prosecuting the proceedings."
Mr McInerney had relied upon five matters concerning the liquidator's conduct of the proceedings for reaching that conclusion. The judge had made findings about each of those matters in the course of the Substantive Judgment. They can be summarised (perhaps somewhat incompletely) as:
(1) Raising a positive case of fraud when there was no evidentiary basis for it [9]-[14].
(2) Failure to tender evidence that would be relevant, and relying upon the absence of relevant entries from Arena's general ledger to support there being any debt secured by the Charge, when there was "clear evidence in bank statements and other documents of associated companies supporting the making of the loans" [15]-[16].
(3) Failure to present evidence showing that Arena was insolvent, and relying for proof of insolvency upon evidence " so weak that he was not acting responsibly and prudently as liquidator in allowing the case to go forward to trial" [17]-[21].
(4) Advancing a particular claim that had no evidentiary foundation [22].
(5) Advancing another claim that was unintelligible [22].
The order the judge made in the present case after the Costs Judgment, as entered in the court records, is:
"Order that the Liquidator, Mr Joubert, pay the defendant's costs of the proceedings on the indemnity basis, without a right of indemnification out of the assets of Arena."
As that was a final order concerning the costs of the proceedings, it would have swept up within it the costs of any interlocutory applications that had not already been separately provided for, including the costs of the application made after the Substantive Judgment for the liquidator to bear the costs personally and on the indemnity basis.
Sources of Power to Require a Liquidator to Bear Costs Personally
In causing the proceedings in the court below to be brought, the liquidator had two different relationships to the subject matter of the proceedings.
One group of claims made in the proceedings contended that Arena was insolvent at the time the Charge was given, that the giving of the Charge was an unfair preference within s 588FA Corporations Act 2001 (Cth) , that the giving of the charge was an uncommercial transaction within s 588FB Corporations Act , that the giving of the Charge was an insolvent transaction under s 588FC Corporations Act , and that the giving of the Charge was an unreasonable director-related transaction within s 588FDA Corporations Act . In making those claims the proceedings invoked a jurisdiction conferred on the Court by the Corporations Act . That jurisdiction could be exercised, pursuant to s 588FF(1) Corporations Act , only " on the application of a company's liquidator " . The liquidator was thus required to be the plaintiff in the proceedings, insofar as he made the claims that invoked that statutory jurisdiction. If only those claims had been brought, and had failed, any costs order that followed the principle that costs follow the event would have been against the liquidator as the unsuccessful plaintiff. Concerning any such costs order against him the liquidator may have had a right of indemnity from the company's assets, if the company's assets extended so far: Hypec Electronics Pty Ltd (in liq) v Mead [2004] NSWSC 731; (2004) 61 NSWLR 169 at [80]-[81]. (Though the Court of Appeal in Mead v Watson reversed Hypec v Mead that reversal related to the application of principle to the facts of the case, not to the content of any legal principle. That may well be the reason why Mead v Watson is not reported in the New South Wales Law Reports. )
A different group of claims made in the proceedings contended that no money was secured by the Charge, that the Charge was voidable at the option of Arena, that the first of the loans that purported to be secured by the Charge was voidable at the option of Arena, and that judgment should be given in Arena's favour against CST for a debt that Arena contended CST owed to it. In making those claims the proceedings relied upon rights that Arena claimed to have, and that the liquidator was causing Arena to assert. If those claims had been the only claims brought, there would have been no necessity for the liquidator to be a party to the proceedings at all. If those claims had been the only claims brought, and had failed, any costs order that applied the principle that costs follow the event would thus have been against Arena as the unsuccessful plaintiff. Such a costs order might have resulted in CST receiving nothing more than a right of proof in a liquidation of Arena, if CST had not taken the precaution of obtaining security for costs: Hypec v Mead at [91]-[95]. Concerning those claims for which Arena was the proper plaintiff, the liquidator was in the position of a non-party.
All claims in the proceedings in the court below were made pursuant to a single Originating Process, which named both Arena and the liquidator as plaintiffs. That cannot hide that in substance there were two separate types of claims being brought. If CST had not made its application that the liquidator bear all the costs, the proper order for costs would have been that the liquidator bear the costs of the statutory claims, and Arena bear the costs of the other claims.
Court Jurisdiction Generally Concerning Costs Against Non-Parties
In Knight v FP Special Assets Ltd (1992) 174 CLR 178, the High Court held that a Rule of the Supreme Court of Queensland conferred jurisdiction to make an order for costs against a non-party. The Rule in question provided that the costs of all proceedings in the Court were to be in the discretion of the Court or a judge. The High Court upheld the power of the Queensland court to make an order for costs against a receiver and manager of a company appointed out of court under a debenture, who caused the company to bring litigation.
Following that decision, a new provision, Pt 52A r 4, was introduced into the Supreme Court Rules in New South Wales in 1994 to restrict the power of the Supreme Court to make a costs order against a non-party. One of the exceptions to the general inability of the court to make a costs order against a non-party was that Pt 52A r 4(5)(e) preserved (or conferred) power for the court to make an order " in the exercise of its supervisory jurisdiction over its own officers ". The rule was amended in July 2002 to add "including solicitors, barristers and court-appointed liquidators" at its end. This Court held that Pt 52A r 4 by implication removed any inherent jurisdiction of the Court to make orders for costs against non-parties outside the limited circumstances that Pt 52A r 4 permitted: Leicester v Walton (NSWCA, 22 November 1995, unreported) (p 12); Wentworth v Wentworth [2000] NSWCA 350; (2001) 52 NSWLR 602 at 636 [162].
At the time of the decisions in Hypec v Mead and Mead v Watson, Pt 52A r 4 continued to be in the Rules. Hence Hypec v Mead discussed the power of the court to make a cost order against a court-appointed liquidator in terms of the Court's supervisory jurisdiction over its own officers.
When the Uniform Civil Procedure Rules were introduced in 2005, an analogous provision to the former Pt 52 r 4A was included in UCPR 42.3. However that provision of UCPR 42 has now been repealed with effect from 7 May 2010. The repeal followed the decision of the High Court in Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75. That decision held that UCPR 42.3(c), which permitted an order for costs against a non-party who had committed an abuse of process, did not in the circumstances of that case justify an order for costs against a litigation funder who had not provided an indemnity for costs that the funded party was ordered to pay. Even prior to Jeffery & Katauskas , the only Australian jurisdictions that imposed any restriction on a superior court's discretionary power to make an order for costs against a non-party were New South Wales and the ACT. The repeal of UCPR 42.3 brought New South Wales into line with most other Australian jurisdictions in that respect.
Since the repeal of UCPR 42.3, there is no specific provision restricting the making of costs orders against non-parties. A general power of the court to make costs orders against parties and non-parties alike is conferred by section 98(1) Civil Procedure Act 2005 :
"(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
Specific Provisions Relevant to Costs Orders Against Liquidators
It was not made clear, in the hearing before us, precisely how Mr Joubert became a liquidator of Arena. He was at one time Arena's administrator. It is not clear whether he became liquidator after Arena's creditors, at a meeting convened under s 439A Corporations Act , resolved that the company be wound up. If that happened, the liquidation, pursuant to s 446A(2) Corporations Act , would be a creditors' voluntary winding up.
Alternatively, on the material before us, the liquidation may be a winding up by the Court. If that were so, the Court (ie the Supreme Court of New South Wales as the Court under whose control the liquidation was taking place) would have a power over the liquidator as its own officer, as part of its inherent jurisdiction. Even though it is ASIC that registers someone as a registered liquidator or an official liquidator (ss 1279, 1282, 1283 Corporations Act ), such a registration entitles the person who is registered to do the types of work that can only be legally performed by such a liquidator. Appointment of such a person by the court is necessary before that person assumes the office of being liquidator of a particular company that is being wound up by the court. The liquidator is an officer of the court when performing the office of being the liquidator of a particular company. This is because that office is acquired through appointment by the court.
Concerning the court's inherent power of control over a liquidator, Barrett J in BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2010] NSWSC 959; (2010) 79 ACSR 558 at [27] notes:
"There was reference in Re J W Murphy and P C Allen; BPTC Ltd(1996) 19 ACSR 569 at 570 to a general law supervisory jurisdiction of the court over court-appointed liquidators or, more, precisely, an 'inherent power of the court to supervise and guide the activities of its own officer'. In Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23; (2007) 81 ALJR 1155 at [31], however, members of the High Court noted that 'historical considerations concerning the role of liquidators did not disclose the exercise by the courts of any general role in the exercise of functions of a disciplinary nature' such as those of the Companies Auditors and Liquidators Disciplinary Board; and that 'significant powers to supervise the conduct of liquidators' was [sic] given to the Board of Trade by the United Kingdom legislation of 1890."
That observation of the High Court in Albarrandoes not tell against the court having at least a limited inherent power over liquidators who are its officers that enables it to require them to bear the cost of litigation that they have instituted, or been responsible for the company instituting. (I put it that way because that is all that is necessary to decide the present case.) Indeed the former Pt 52A r 4 Supreme Court Rules presupposed the existence of such a power. Further, it was McLelland CJ in Eq, whose decisions are entitled to especial respect, who decided Re J W Murphy and P C Allen; BPTC Ltd (1996) 19 ACSR 569.
There are also some statutory provisions that would enable the Court (in this context, any one of the superior courts identified in s 58AA Corporations Act , which include the Supreme Court of New South Wales) to exercise control over a liquidator's actions. Section 477(2) Corporations Act provides:
"Subject to this section, a liquidator of a company may:
(a) bring or defend any legal proceedings in the name and on behalf of the company ..."
Section 477(6) Corporations Act provides:
"The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise or proposed exercise of any of those powers."
Though s 477 appears in Pt 5.4B, which relates to winding up in insolvency or by the Court, s 506 Corporations Act (which appears in Div 4 of Pt 5.5, and relates to voluntary winding up generally) provides:
"The liquidator may:
(b) exercise any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court.
Thus the power to bring and defend litigation, subject to the control of the Court under s 477(6), applies to both liquidators in a voluntary winding up and Court appointed liquidators.
Further, s 536 Corporations Act provides:
"(1) Where:
(a) it appears to the Court ... that a liquidator has not faithfully performed or is not faithfully performing his or her duties ...
the Court ... may enquire into the matter and, where the Court ... so enquiries, the Court may take such action as it thinks fit."
Section 536 appears in Pt 5.6 of the Corporations Act , which applies to all types of winding up. Section 536 can result in an order that the liquidator compensate the company for loss caused by his delinquency: BL & GY International Co Ltd v Hypec Electronics Pty Ltd at [36]. However, the formality of the inquiry process that is usually required under s 536 suggests it might not be as likely a source of power as the inherent power and s 477.
Section 477, and possibly s 536, give the Court power to decide whether a liquidator who is ordered to pay the costs of litigation he has brought in his own name should have indemnity for them. They also give the Court power to decide whether a liquidator who has caused a company to bring litigation in its own name should be required to bear those costs. The standards by reference to which the court makes those decisions are those of the general law relating to liquidators' duties to creditors and contributories, as stated in Mead v Watson . The costs that were in question in Hypec v Mead and Mead v Watson were of two sets of proceedings, in one of which the company was the plaintiff, and in the other of which the liquidator was the plaintiff. The two sets of proceedings had been heard together. The Court of Appeal applied the same principles in deciding whether the liquidator should ultimately be required to bear the costs of both sets of proceedings.
Insofar as a liquidator is seeking reimbursement from the company for expenses that he has incurred in connection with litigation (which would include any of his own money he had expended in the litigation, and any costs that he had been ordered to pay concerning claims that he had brought in his own name and lost), the liquidator's general law right of indemnity from the fund for expenses " properly incurred" is supplemented, but not changed in substance, by s 556 Corporations Act . So far as relevant, s 556 Corporations Act states:
"(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;
...
(dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority;
(de) next, the deferred expenses;"
(2) In this section:
...
deferred expenses , in relation to a company, means expenses properly incurred by a relevant authority, in so far as they consist of:
(a) remuneration, or fees for services, payable to the relevant authority; or
(b) expenses incurred by the relevant authority in respect of the supply of services to the relevant authority by:
(i) a partnership of which the relevant authority is a member; or
(ii) an employee of the relevant authority; or
(iii) a member or employee of such a partnership; or
(c) expenses incurred by the relevant authority in respect of the supply to the relevant authority of services that it is reasonable to expect could have instead been supplied by:
(i) the relevant authority; or
(ii) a partnership of which the relevant authority is a member; or
(iii) an employee of the relevant authority; or
(iv) a member or employee of such a partnership.
...
relevant authority , in relation to a company, means any of the following:
in any case-a liquidator or provisional liquidator of the company;
..." (emphasis added)
Section 556(1) imposes a positive duty on a liquidator to apply the assets of the company in the order s 556 sets out. In so far as an expense that a liquidator has incurred falls within s 556 the liquidator can be the beneficiary (in his capacity as the person who has incurred the expense) of his own duty to make the payment. However, his duty to make the payment extends, whether the payment is made under s 556(1)(a), (dd) or (de), only to " expenses properly incurred" . Conversely, his entitlement to reimbursement from the assets of the company for expenses extends only to " expenses properly incurred" .
It is unnecessary for the purposes of this judgment to go into any detail concerning the criteria by reference to which it is decided whether a liquidator's expense has been properly incurred (cf In re Silver Valley Mines (1882) 21 Ch D 381 at 386, 391, 392; Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 at 283, 285-286, BH McPherson, The Law of Company Liquidation 4 th ed (1999) p 302). What matters, for present purposes, is that there is a legal standard that marks the boundary between the expenses (including legal costs) for which the liquidator has an entitlement to indemnity, and those for which he has no entitlement to indemnity. That legal standard fixes when the liquidator can be required to bear costs that the company has been ordered to pay. It also fixes when the liquidator can be required to bear costs that the company would have been ordered to pay if a court had not decided that, by reference to the standards governing the manner in which a liquidator should conduct a liquidation, the liquidator should bear them.
Concerning the situation where a liquidator causes the company to bring litigation in its own name, and loses, and there is an application that the liquidator should bear personally the costs of that litigation, I venture to repeat what I said in Hypec v Mead at [108]:
"Any application that a liquidator should bear any costs which the company had been ordered to pay in consequence of losing litigation could be brought under section 477(6) or section 536 Corporations Act 2001 , or in the Court's inherent jurisdiction. However, if the Court which hears the litigation which the company brings is also a Court which has administrative control of the litigation, there is no reason why it should not avoid circuity of action by considering, at the conclusion of the litigation, whether the liquidator should be ordered to pay the costs of the litigation, provided the liquidator has been given appropriate notice of the application which will be made, and the basis upon which it will be made, and there is no other problem of procedural fairness: cf Australian Forest Managers Ltd (in liq) v Bramley (1996) 19 ACSR 398 at 407-8 per Lindgren J ; Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [442] per Young CJ in Eq."
In substance, this is the procedure by which the judge made the order for costs following the Costs Judgment, insofar as his Honour's order related to the costs of the claims that the liquidator had caused to be made in the company's name.
Is the Section 98 Power to Order Costs Against a Non-Party Relevant Here?
The general power under s 98 Civil Procedure Act for the Court to decide by whom costs are to be paid is a power that would be exercisable if litigation were brought in any court to which the Civil Procedure Act applied. Thus, it is applicable in the Supreme Court, but not only in the Supreme Court. It follows that if a liquidator were to cause a company in liquidation to bring proceedings in the District Court for a debt said to be owed to the company, or a tort said to be committed against the company, there would be power for the District Court to order, under s 98, that the liquidator bear the costs, if the action failed. However, the types of considerations that would properly be within the scope of s 98 are ones relating to the outcome of the litigation, and the manner of instigation and conduct of the litigation, or the transaction to which the litigation relates, as between the parties to the litigation. Insofar as a liquidator might be ordered to pay costs under s 98 for litigation to which the company was a party, it would usually be by virtue of the role he played in the company initiating the litigation, or deciding to conduct the litigation in a particular way or in particular circumstances. Mason CJ and Deane J in Knight at 185 (Gaudron J agreeing) identified the criterion for making an order for costs against a non-party, under a general power putting costs of litigation into the discretion of the Court, as being "the interests of justice ". At 190 their Honours similarly noted that there would be " cases in which justice calls for an order for the award of costs against a non-party " . At 192 they held that the power to make an order for costs against a non-party " must be exercised judicially and in accordance with general legal principles pertaining to the law of costs " .
By contrast, the considerations that guide the Court's exercise of powers under its inherent jurisdiction over its own officers and under ss 536 and 477(6) are ones that are internal to the liquidation. As I said in Hypec v Mead at [105]-[106], the relevant considerations concern whether, as between the liquidator and the creditors and contributories for whom he is administering the company's assets, the liquidator has performed his or her duties, or the liquidator has failed to act prudently and reasonably in the sense explained in Re Beddoe .
At the time Hypec v Mead and Mead v Watson were decided, the general power of the Supreme Court to order costs was conferred by s 76 SC Act , which was not relevantly different to the present s 98 Civil Procedure Act . However because the general conferral of power under s 76 SC Act was " subject to ... the rules" , the only circumstances in which an order for costs could be made against a non-party were those that fell within Pt 52 r 4A Supreme Court Rules . In other words, at the time that Mead v Watson was decided the only source of power available to a Supreme Court judge to make an order for costs against a liquidator who was not himself a party to litigation was through exercise of the court's supervisory jurisdiction over its own officers, and a direct application of s 76 SC Act was not possible. The repeal of UCPR 42.3 had the effect that, by the time the judge in the present case gave the Costs Judgment, s 98 Civil Procedure Act had become a source of power that was potentially available to a judge considering whether to make a costs order against the liquidator who had caused claims to be brought by the company in its own name.
The Costs Judgment did not explicitly identify the source of the power the judge was exercising. However, the legal justification that the judge gave for his decision was the principles stated in Watson v Mead . That, together with his statement of his conclusion in terms that the liquidator " did not act reasonably and prudently in bringing and prosecuting the proceedings so that the expenses incurred in the litigation were not 'properly incurred' in the liquidation " shows that the power being relied upon was the power relating to the Supreme Court's control over internal matters in the liquidation. It was not a direct application of s 98 Civil Procedure Act .
Construction of Section 101(2)(c)
The subject matter of section 101(2)(c) is " a judgment given or order made" . In Etna v Arif [1999] VSCA 99; [1999] 2 VR 353 Batt JA (Charles and Callaway JJA agreeing) considered a closely analogous Victorian section. That section required leave concerning an order made by the Trial Division constituted by a judge " as to costs which are in the discretion of the Trial Division " . That provision is closely analogous to s 101(2)(c) SC Act , but not identical, because it omits the word " only" . At [62] Batt JA said that the Victorian provision:
"... is expressed in terms of orders, not appeals, as to costs ... The natural meaning of 'an order ... as to costs', in my view, is a curial command that relates to costs. In other words, the expression is apt to refer to the contents of a single paragraph of the document known as a judgment or an order provided that the paragraph relates to costs."
Provided that the judgment or order that is sought to be appealed against (i) is one that "relates to" costs, in the sense that costs are its subject matter; (ii) is one that only relates to costs, and (iii) the costs to which it relates are ones which are in the discretion of the Court, those remarks apply to s 101(2)(c) SC Act . When I say the " subject matter" of the order, I mean that it deals with legal costs in some way, for example by prescribing the manner of their ascertainment or calculation, or by whom they are to be borne, either ultimately or temporarily. The scope of " judgment or order as to costs" extends beyond final orders as to costs, and includes interlocutory orders such as for a stay of a costs order. It includes matters such as a (comparatively rarely encountered) pre-emptive or anticipatory costs order.
The text of the order against which the liquidator seeks to appeal, and against which he seeks to cause Arena to appeal, is set out at [15] above. The order is clearly one that relates to costs.
Whether the order was an order "as to costs only" can be approached, at one level (cf [75]-[77] below) as a matter of construction of the order. The fact that the order expressly provides that the liquidator is not to have a right of indemnity out of the assets of Arena has the consequence, in my view, that it is not one that is "as to costs only" . That is a sufficient reason why s 102(2)(c) does not apply to it.
I have reached the conclusion that there is another reason, of more general application, why s 102(2)(c) does not apply to the order. It is that the costs to which the order relates are not ones " which are in the discretion of the Court" , within the meaning of s 101(2)(c) SC Act . My reasons for reaching that view start from the history of the provision.
Pre-1970 NSW law Re Appeals Against Costs Orders
There has been a provision not materially different to s 101(2)(c) in the SC Act since that Act was first enacted in 1970 (though initially it was in s 101(3)(a)).
However, before enactment of the SC Act there had been no analogous provision restricting appeals concerning costs in New South Wales. Before 1970 appeals from the equity side of the Court were authorised under s 81(1) Equity Act1901 , which provided:
"Any person aggrieved by any decree or order of the Judge, whether sitting in the open Court or in chambers, may, at any time within fourteen days next after the pronouncing of the same, or within such further time as the Judge allows, enter an appeal in the office of the Master against such decree or order to the Full Court, subject to such general rules as are prescribed."
The " general rules" which were prescribed concerning appeals from the equity side of the Supreme Court were contained in clauses 220-224 of the Consolidated Equity Rules of 1902 , and imposed no limitation concerning appeals relating to costs. Various decisions expressly confirmed that s 81 (or its similarly-worded predecessor, s 21 of Administration of Justice Act 1840 (NSW) ) permitted an appeal for costs only, notwithstanding that such appeals would not have been entertained in England: Dight v Gordon (1863) 3 SCR (Eq) 63; Dixon v Williams (1875) 13 SCR (Eq) 7 R 13, 18. Other decisions allowed such an appeal to be heard without questioning its jurisdictional basis: Lillis v Davis (1884) 1 WN (NSW) 27; Hood v Cullen (1885) 6 NSWLR (Eq) 22 (also reported more skimpily sub nom Hood v Lawler (1885) 1 WN (NSW) 117).
As before 1970 the Court's oversight of liquidations was conducted on the equity side of the Court, appeals from the common law side of the court pre-1970 are much less closely analogous to the factual situation with which this case is concerned than are appeals from the equity side. However at that time there was no requirement for leave to appeal concerning costs on the common law side of the Court. That was largely, but not entirely, because there was little scope under the substantive law to appeal separately concerning costs and the merits of the claim. The costs order that was obtained in a common law action before 1970 was in most circumstances one that followed as a matter of law from the type of action concerned and the result of that action ( Common Law Procedure Act 1899 , s 261-267). There was some scope for a judge to exercise a discretion as to costs under s 267 Common Law Procedure Act , which enabled a judge to certify that if a plaintiff recovered 30 or less he should have his costs, even though without such certification the plaintiff would have no entitlement to costs. As well there was a default provision in s 11A Supreme Court Procedure Act 1900 , introduced in 1924, whereby if no Act made provision for the costs of a cause or proceeding in the Court the costs would be in the discretion of the Court or judge. The Supreme Court Procedure Act 1900 permitted the parties by consent to dispense with a jury in a common law action, and s 5(6)-(13) of that Act permitted an appeal to the Full Court from any decision of a judge sitting alone. What matters for present purposes is that immediately before the coming into effect of the SC Act :
- the provisions relating to motions for a new trial (ss 160-161 Common Law Procedure Act );
- the provisions relating to motions to set aside a verdict, in arrest of judgment or for judgment non obstante veredicto made by the Full Court following a jury trial (ss 162-164 Common Law Procedure Act and Order XXII General Rules of Court ); and
- the provisions concerning appeals from a judge sitting alone in their form
all said nothing about leave being necessary for an appeal as to costs only.
When there had been no New South Wales provision analogous to the present s 101(2)(c) SC Act prior to 1970, and when the avowed purpose of the SC Act was to introduce in New South Wales a system in which the administration of law, equity, and other jurisdictions of the superior courts was conducted in a single court under a common system of procedure, as had been done in England by the Judicature Act 1873 (UK) , it is to English models that one should turn to for assistance in the construction of s 101(2)(c).
English Legislation Restricting Costs Appeals
Section 49 Judicature Act 1873 (UK) was the obvious model for s 101(2)(c). It provided:
"No order made by the High Court of Justice or any judge thereof by the consent of the parties, or as to costs only, which by law are left to the discretion of the Court, shall be subject to any appeal except by leave of the Court or judge making such order."
Section 101(2)(c) SC Act is in substance identical to s 49 Judicature Act , save only that s 101(2)(c) applies to both judgments and orders (not only to orders), and under s 101(2)(c) it is the Court of Appeal, and not the Court or judge who made the order in question, which is empowered to grant the leave to appeal.
There is a substantial body of authority that decides how s 49 Judicature Act and some later statutory provisions that replaced it apply to situations more or less analogous to the present.
There are two types of court orders relevant to the present case. The first type is court orders that require a non-party to bear the costs of the litigation. The second type is when the costs order that is made depends on how a person involved in the running of litigation (whether a party or not) has performed duties owed to a person or class of people in some capacity other than as a litigant. It is convenient to refer to the cases by reference to the roles, other than as litigant, that were relevant to the making of an order concerning how the costs of litigation should be borne. Such roles include trustees and executors; parties accused of breach of injunction or misconduct; legal practitioners; and liquidators. These categories will be discussed in turn below.
Trustees and Executors
In Knight at 183 Mason CJ and Deane J summarised the principles concerning awards of costs in equity prior to the Judicature Act :
"... in equity the giving of costs was entirely discretionary. The Court of Chancery exercised a wide discretion not only as to the circumstances under which costs were awarded but also as to the measure and extent of the costs."
In re Hoskin's Trusts (1877) 6 Ch D 281 was an early false start to construction of s 49 Judicature Act . Trustees sought to appeal against an order that required them to bear personally the costs of litigation brought against them concerning administration of the trust estate. No leave to appeal had been obtained from the judge below. James, Baggallay and Brett LJJ all held that the appeal did not lie, and that the position was the same after the Judicature Act as it had been held to be prior to the Judicature Act , in Taylor v Dowlen (1869) LR 4 Ch App 697. James LJ said, at 283:
"The present is not a case where the Appellant is ex debito justitiae entitled to costs; the costs of a trustee being subject to the discretion of the Court."
In Farrow v Austin (1881) 18 Ch D 58 a differently constituted English Court of Appeal considered a situation where one of several executors was also a residuary legatee. The next friend of that executor brought proceedings seeking an order for administration, and an account. The result of the account was that the residuary estate was insufficient for payment of the debts and costs. The judge refused any costs of the cause to the next friend, and ordered the next friend to pay certain of the costs of the defendant. The next friend appealed, and a preliminary objection was taken that the appeal was for costs only. That preliminary objection failed. Sir George Jessel MR (Baggallay and Lush LJJ concurring) held, at 60:
"According to the rules acted upon by Courts of Equity prior to the Judicature Act , a residuary legatee filing a bill for administration was entitled to costs out of the estate unless some special grounds were shewn for depriving him of them; and if he was also a personal representative, his prima facie claim to costs out of the estate was all the stronger. ... The Appellant has a prima facie right to costs out of the estate which can only be defeated by shewing some special grounds, and I consider that the costs do not come within the description of costs which are in the discretion of the Court."
That decision was arrived at without any reference to In re Hoskin's Trusts , and is inconsistent with it.
The next year in Turner v Hancock (1882) 20 Ch D 303 another differently constituted Court of Appeal disapproved of the decision in In re Hoskin's Trusts . Sir George Jessel MR at 304-305 quoted with approval the following passage from the judgment of Lord Selborne in Cotterell v Stratton (1872) LR 8 Ch App 295 at 302:
"The right of a mortgagee in a suit for redemption or foreclosure to his general costs of suit, unless he has forfeited them by some improper defence, or other misconduct, is well established, and does not rest upon the exercise of that discretion of the Court, which in litigious causes is generally not subject to review. The contract between the mortgagor and mortgagee, as it is understood in this Court, makes the mortgage a security not only for principal and interest, and such ordinary charges and expenses as are usually provided for by the instrument creating the security, but also for the costs properly incident to a suit for foreclosure or redemption. In like manner the contract between the author of a trust and his trustees, entitles the trustees, as between themselves and their cestuis que trust , to receive out of the trust estate all their proper costs incident to the execution of the trust.
These rights, resting substantially upon contract, can only be lost or curtailed by such inequitable conduct on the part of a mortgagee or trustee as may amount to a violation or culpable neglect of his duty under the contract. Any departure from these principles in the general course of the administration of justice in this Court would tend to destroy, or at least very materially to shake and impair the security of mortgage transactions and the safety of trustees. In fact, such a departure instead of being beneficial to those who may have occasion to borrow money on security, or to repose confidence as to property in their friends or neighbours, would, in the result, throw the former class of persons into the hands of those who indemnify themselves against extraordinary risks by extraordinary exactions, and would deprive the latter class of the assistance of all who cannot afford, or are not inclined, to bestow upon the affairs of other persons their money as well as their trouble and time."
Lord Selborne had continued at 303, in a passage not quoted by Sir George:
"A decree, therefore, in a redemption suit, which disallows the costs of the mortgagee, is of right appealable, and if appealed against, can only be supported by proof of special circumstances sufficient to justify such a departure from the ordinary course of the Court."
Sir George held that, on the basis of Cotterell v Stratton , the right of the trustee to indemnity was not a matter of discretion of the court, and thus s 49 Judicature Act did not apply to an appeal in which a trustee contended that he ought not have been denied his costs of litigation from the fund he was administering. Cotton and Lindley LJJ delivered judgments to similar effect.
A trustee's right to indemnity from the trust estate for properly incurred expenses is now seen as arising in equity's exclusive jurisdiction rather than as a matter of contract. The trust property legally belongs to the trustee, and it is consistent with the trustee performing faithfully the duties of his office for the trustee to reimburse himself from that property for expenses properly and reasonably incurred. The right of the trustee to reimburse himself for such expenses from the trust property is " a necessary incident of the office of trustee " : see Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [47]-[50]. Even when there is a trust deed that confers express powers on the trustee, including powers to spend and reimburse, those powers usually operate by articulating some specific aspects of what is to count as faithful performance of the office of trustee of that particular trust, rather than as a matter of contract (though of course it is possible for a trustee to contract with a settlor that he will carry out the trust). Of course, the source of the trustee's right to indemnity is now seen as arising in equity's exclusive jurisdiction rather than in contract. However, the principles in accordance with which a trustee is entitled to obtain indemnity for expenses have not changed - it is still that the trustee is entitled to indemnity unless the expenses are not reasonably and properly incurred: National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268 at 274 per Starke J, 277 per Williams J (Rich ACJ agreeing). Any decision of the court that a trustee should be denied indemnity from the trust fund for his costs of litigation, on the basis of his conduct, thus still requires a finding that the trustee's conduct is such that the indemnity that would ordinarily apply does not apply concerning the particular expenses that are in dispute.
I will mention just three other cases that illustrate the court proceeding in that way. In re Sarah Knight's Will (1884) 26 Ch D 82 involved an application for appointment of new trustees, after the existing trustees had done nothing to make certain payments to which a legatee was entitled. The trial judge replaced the trustees, and ordered the trustees to pay the cost of the petition. When the trustees appealed against the order for costs made against them a preliminary objection was taken, that the appeal was only as to costs. The preliminary objection failed. Cotton LJ (Fry LJ concurring) said, at 90:
"A trustee is entitled to costs unless it is adjudicated against him that he has been guilty of misconduct, and until that is adjudicated his costs are not within the discretion of the court. Whether he has been guilty of misconduct is a matter on which an appeal must lie."
In Re Pugh; Lewis v Pritchard (1888) 57 LT 858 an executor had been ordered to pay the costs of an action for the administration of the estate. The executor appealed, and his right to do so was challenged on the basis of s 49 Judicature Act and a provision in Order LXV Rule 1 of the then-applicable rules of court that all costs, including those of " the administration of estates and trusts" were within the discretion of the court, provided that " nothing herein contained shall deprive an executor ... who has not unreasonably instituted or carried on all resisted any proceedings, of any right to costs out of a particular estate or fund to which he would be entitled according to the rules hitherto acted upon in the Chancery Division" . Halsbury LC at 859 (Cotton and Bowen LJJ concurring) held the appeal was competent:
"... because, according to the practice of the Chancery Division, an executor is entitled to his costs out of the estate unless that right has been displaced by some misconduct on his part. It is enough for me to say that no misconduct on the part of the defendant has been established in the present case as brought before us. Under these circumstances, his right to costs is not displaced ..."
In re Beddoe arose from a situation in which a trustee had resisted litigation relating to the trust property that had been brought against him in the Queen's Bench Division, had lost that litigation, and been ordered to pay the costs of the successful plaintiff. The trustee then applied to a judge of the Chancery Division for an order authorising him to retain those costs out of the trust estate. Kekewich J authorised the payment of the costs from the trust estate. A representative of the trust beneficiaries appealed against that order. The Court of Appeal rejected a submission that the appeal was incompetent by reason of s 49 Judicature Act .
Lindley LJ at 554 held that, when Order LXV rule 1 referred to costs being "in the discretion of the Court or Judge" , the relevant court or judge was the judge who had tried the action in which the costs were awarded. He said at 554-555 that the rule:
"... does not mean that the costs in a proceeding are to be in the discretion of the Court or Judge before whom these costs may incidentally come, upon an application to have them borne by some fund or some person not before the Court in the proceedings in which they have been incurred - that is not the meaning of the rule. Although costs are costs when they are incurred, the moment you come to ask that they shall be borne as expenses by a particular fund, or by persons not parties to the proceedings in which they were incurred, they become, not costs, but charges and expenses, and when once you get them into the category of charges and expenses this rule and this enactment do not apply to them."
He said, at 555, that the costs of the action in the Queen's Bench Division were in the discretion of the Commissioner who had tried the case there, and continued:
"But when you ask a Judge in the Chancery Division to allow those costs to the Defendant who has been unsuccessful, those costs immediately assume the character of charges and expenses; they are not costs of the proceeding before the Chancery Judge who was asked to allow them. They are no more costs in that sense, no more costs in his discretion, than any other charges and expenses would be - such, for example, as charges and expenses incurred by trustees in taking advice, or in sales, or any abortive proceeding - all of which may be perfectly proper."
Bowen LJ at 559-560 expressed a similar view:
"The costs of the collateral action in the Queen's Bench become, in my opinion, charges and expenses when the trustee seeks to recoup himself for them in the administration of the trust. They were costs in their origin, but cease to be costs which are purely within the unappealable discretion of a Court when an attempt is made to fix them on the trust fund... Is it reasonable to sweep within the scope of a section dealing with general costs of actions the costs of an independent and collateral proceeding between third persons tried before a different Judge? If this were a question between principal and agent, can it be said that under this rule the costs incurred by an agent in an action brought or defended by him were as between himself and his principal to be within the absolute discretion of some other Judge who had not heard the case? The liability of the principal would depend on questions of pure fact. Why should the discretion of a Judge of the High Court conclude the matter? Why should the law be otherwise in the case of a trust fund? All matters in connection with trust funds are not made the subject of pure discretion of a Judge. They depend on questions of gravity involving controversies as to facts, and possibly legal questions of right. The fallacy of the Respondent's argument lies in supposing that because a trustee has to pay costs in a collateral suit, it is as costs that he inflicts them on his own trust fund. It is only as 'charges and expenses' that he can recover them, and charges and expenses are not matters as to which an appeal is taken away, either under sect. 49 of the Act of 1873, or under Order LXV., rule 1."
AL Smith LJ concurred (it is obscure with whom, or with what apart from the result).
Contempt
In Witt v Corcoran (1876) 2 Ch D 69 an injunction had been issued against the defendant in litigation. The plaintiff moved to commit the defendant for breach of that injunction. The order that the Court made on that motion was:
"That, the Court being of opinion that the Defendant ... has committed a breach of the said injunction, and the Plaintiff ... not pressing to commit the said Defendant, this Court doth not think fit to make any order on the said motion, except that the Defendant do pay to the Plaintiff ... his costs of this application."
The defendant appealed. Though the plaintiff contended that the appeal was incompetent by reason of s 49 Judicature Act , that contention failed. James LJ said, at 69:
"... there is no discretion as to whether a man has or has not been guilty of something alleged against him. The Defendant says he has been guilty of nothing, and if the court had been of that opinion, it could not have ordered him to pay the costs ... . The Court has made an adjudication, and, as a consequence of that adjudication, has ordered the Defendant to pay the costs. If the Court had thought that no contempt had been committed, it could not have ordered the Defendant to pay the costs. The Defendant must have a right of appeal against that adjudication."
Mellish LJ and Baggallay JA agreed.
Though Witt v Corcoranwas not followed in Knight v Clifton [1971] Ch 700, no question arose in Knight v Clifton of the competence of an appeal, as the trial judge had given leave to appeal (noted by Russell LJ at 707). The decision not to follow Witt v Corcoran related to the question of whether (in light of a change in the legislative provisions governing the award of costs) there was power to make an order for costs against a winning party (710 per Russell LJ; 716 per Sachs LJ; 724 per Buckley LJ). Witt v Corcoran stands as authority for the proposition that, as Bowen LJ said in Stevens v Metropolitan District Railway Company (1885) 29 Ch D 60 at 73:
"Where the Judge's jurisdiction over costs depends upon the existence of some breach of an injunction or misconduct, it seems to me that an appeal lies against his finding that there has been a breach of the injunction or misconduct, even although he only inflicts costs. Such a case is not, I think, within Order LXV, rule 1. It really is an appeal against the finding by means of which the Judge clothes himself with the jurisdiction to inflict costs."
(As to Order LXV rule 1 see para [95] below.)
Legal Practitioners
As is the case with trustees and executors, for the court to order that a legal practitioner bear the costs of litigation requires the court to make a finding that the conduct of the legal practitioner has been deficient. The need to make that finding takes such a case out of being " costs that are in the discretion of the court " , within s 49 Judicature Act . In Re Bradford, Thursby and Farish (1883) 15 QBD 635 (also reported, less fully, sub nom In Re Milton (1884) 32 WR 238) a solicitor had been ordered to pay the costs of proceedings below, on the grounds that his conduct had been vexatious. Bowen LJ, delivering the judgment of the Court of Appeal, held that leave to appeal was not necessary. He noted that the immunity from appeal applied " as to costs only which by law are left to the discretion of the Court " , and continued, at 636-637:
"... it was not within the discretion of Day J to punish Mr Hare by his direction as to costs unless Mr Hare had in fact been guilty of some misconduct or negligence, and that there must have been some misconduct or negligence on the part of Mr Hare in order to give the judge jurisdiction to exercise his discretion as to costs. Without fixing the precise limits to the exercise of the judge's discretion, we are of opinion that on the question whether there has or not been misconduct or negligence by the solicitor there ought to be an appeal."
Thompson v Fraser (Practice Note) [1986] 1 WLR 17 concerned the construction of s 18(1)(f) Supreme Court Act 1981 (UK) . That statutory provision then stated:
"No appeal shall lie to the Court of Appeal . . . (f) without the leave of the court or tribunal in question, from any order of the High Court or any other court or tribunal made with the consent of the parties or relating only to costs which are by law left to the discretion of the court or tribunal; ..."
A trial judge had ordered the solicitor for one of the parties to pay the costs of the litigation, and had refused leave to appeal. Notwithstanding that refusal, the solicitor appealed to the Court of Appeal. In the course of its judgment, the Court (Sir John Donaldson MR, Parker and Croom-Johnson LJJ) held that the appeal was competent. The reason for that conclusion was that (17):
"... an appeal in such circumstances does not relate only to costs or, indeed, primarily to costs; it relates to the conduct of the solicitor. In those circumstances, section 18(1)(f) has no application."
It is to be observed that this decision was reached without any reliance on whether the costs in question " are by law left to the discretion of the court or tribunal " .
Thompson v Fraser has been followed, concerning a rule requiring leave to appeal from an order "as to costs only" , by Lasry J as a single judge of the Victorian Supreme Court in Smirnios v Byrne [2007] VSC 513 at [25]-[28]. I can understand how an order that a legal practitioner is to pay costs is not an order " relating only to costs" , but there might be room for argument about whether it is " as to costs only" (see [113] below). It is because of that possible room for argument that I have based my decision that the order involved in the present case is not " as to costs only" ([47] above) on the express mention in the order that the liquidator is not to have a right of indemnity.
Wilkinson v Kenny [1993] 1 WLR 963 concerned a situation where solicitors had been ordered to pay certain of the costs of litigation, and four-fifths of the costs of the application for the solicitors to pay those costs. The solicitors purported to appeal only against the order concerning the costs of making the application for costs. Sir Thomas Bingham MR at 971 said that he had " no doubt whatever" that the decision in Thompson v Fraser was correct, and (at 972) " no doubt" that the views of Nicholls LJ in In re Land and Property Trust Co plc (discussed below at [104]) were correct. However his Lordship held those decisions did not govern the case, because (a) insofar as an application for costs was made against them, they were parties to the action, and (b) the decision as to costs of the application against the solicitors was one that was left to the discretion of the court.
I would prefer to leave for further consideration whether reason (a) is correct. However in light of reason (b) the result is readily understandable. The appeal was not seeking to question whether the judge was correct in holding that the solicitor's conduct had been deficient, only whether, given that holding, it was correct to order the solicitor to pay the costs of the application for costs.
Michael v Freehill Hollingdale & Page (1990) 3 WAR 223 concerned s 60(1)(e) Supreme Court Act 1935 (WA) which was in terms not materially different to s 102(2)(c) SC Act . An unsuccessful litigant, Dr Michael, sought an order that Malcolm CJ described, with considerable understatement, as "unusual". It was that the opposing solicitors indemnify him against certain costs that he had been ordered to pay the solicitors' client, on the basis that the solicitors caused costs to be incurred improperly and without reasonable cause. A Master dismissed the application and Dr Michael sought to appeal, or alternatively sought leave to appeal, the decision of the Master. One basis on which Malcolm CJ, at 227, held that the appeal against the Master's order did not require leave was that an application for the solicitor to bear the costs was:
"analogous to third-party proceedings in which an unsuccessful party in the principal proceedings seeks contribution in indemnity from a third party in respect of his liability. The difference is that the subject matter of the indemnity in this case comprises the costs which Dr Michael ... has been ordered to pay the successful party in the principal proceedings. This being so, it would be consistent with the analogy with third-party proceedings to distinguish the subject matter of the application from costs which by law are in the discretion of a judge or Master."
Malcolm CJ also said, at 228 that another reason why no leave was necessary was that "[i]n substance the foundation for the exercise of the jurisdiction ... is the misconduct of the solicitor."
Other decisions that an order requiring a legal practitioner to pay the costs of litigation do not need leave to appeal under a provision like s 102(2)(c) SC Act are Macteldir Pty Ltd v Dimoski [2006] FCA 489; (2006) 152 FCR 487 per Lindgren J, Etna v Arif [1999] 2 VR 353 per Batt JA (Charles and Callaway JJA agreeing) at [69], and Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2003] QCA 516; [2004] 2 Qd R 11 at [11]-[12] (though obiter) per de Jersey CJ, Davies JA and Mullins J. Like Wilkinson v Kenny , in Martinovic v Chief Executive, Qld Transport [2005] QCA 55; [2005] 1 Qd R 502 the Queensland Court of Appeal held that a barrister had no right of appeal without leave against an order that he pay the costs of an application to require him to pay the costs of substantive litigation, when there was no appeal against the finding that he pay the costs of the substantive litigation. However Jerrard JA (White JA agreeing) said at [29] that the obiter remarks in Emanuel at [11]:
"... repeat a principle of long standing, established by the cases cited therein, and which explain that it is not ordinarily within the discretion arising for exercise by a judge as to costs of a proceeding to make an order for payment of costs against a party's lawyer. That power depends on a finding that the lawyer has been guilty of misconduct, and on the latter question there ought to be an appeal without leave."
Liquidators
In In re Silver Valley Mines (1882) 21 Ch D 381 Bacon VC had ordered that several shareholders have their names removed from the register, and have their money refunded, because of misrepresentations in a prospectus. That order was made in ignorance of the fact that, earlier on the same day, a petition to wind up the company had been presented. The company was wound up some weeks later on that petition. The liquidator had a doubt about whether the consequence of the presentation of the winding up petition was that the orders of Bacon VC were invalid. Hence he took out a summons to strike out the claim of Abel, one of the people in whose favour Bacon VC had made an order, to rank as a creditor.
Kay J dismissed that summons with costs, on the basis that it was wholly misconceived, because the order of Bacon VC was conclusive of the status of Abel as a creditor until that order was reversed on appeal. Kay J refused to give the liquidator his costs out of the estate. Kay J also refused the liquidator leave to appeal against that order. The liquidator then applied to the Court of Appeal to vary the order of Kay J by giving him his costs from the estate. Jessel MR held, at 385, that there was a right of appeal from that order. He said:
"... it appears to me that the case is one which is the subject of appeal. I think, having regard to the words of Order LV, and the words of the Act, the official liquidator must be treated as a person who as a general rule is entitled to his costs of the liquidation properly incurred, and therefore he can appeal against the order."
He went on to dismiss the appeal on its merits, saying, at 386:
"... it requires a very strong case to deprive an ordinary gratuitous trustee of his costs. As a rule he can only be made to pay costs for misconduct, and he is only deprived of his costs for something which might properly be termed misconduct, though it sometimes is characterised by a milder term, such as neglect, or negligence, or carelessness. But there is no doubt that the Court of Chancery did occasionally deprive trustees of their costs for innocent mistakes. .... But I by no means say that an official liquidator who (though no doubt in a sense he is a trustee) is a paid agent of the Court, is entitled to the same indulgence as an ordinary gratuitous trustee. I think that he is not. I think the cases in which he may properly be deprived of costs for a mistake, or a blunder, are more numerous than those in which any such order ought to be made as against a gratuitous trustee. That being so, we have to consider whether in the present case there has been such a miscarriage in the exercise of the discretion of the Judge that we ought to interfere?"
It should be noted that Sir George used the word " discretion" in the last sentence quoted. However, the type of " discretion" to which he was referring could not have been discretion which made the costs in question costs which by law were left to the discretion of the judge. This is because Sir George decided that the liquidator had a right of appeal against the relevant order.
Brett LJ gave no separate consideration to whether there was a right of appeal. Cotton LJ at 392, in the course of holding that Kay J had been right to deny the liquidator his costs, said:
" I see no reason to differ from this conclusion, and, therefore, though I think the case one where an appeal will lie , I do not think that it ought to be allowed ..." (emphasis added)
Daniell's Chancery Practice , 8 th ed (1914), p 1112 ff discusses the application of s 49 Judiciary Act . In the course of that discussion at 1115 the authors say that:
"The right of a trustee to his costs, like that of a mortgagee, is a matter of contract, and he can only be deprived of them for misconduct, and therefore an appeal may be brought from a decision in respect of such costs; and whether a trustee has been guilty of misconduct is a matter on which an appeal will lie" (citations omitted).
Later on 1115 the authors state:
"A liquidator is in general entitled to his costs of the estate, and may appeal from an order refusing his costs; but it seems that he cannot appeal from an order directing him to pay costs personally. " (citations omitted, emphasis added).
The only authority cited for the proposition that I have left unemphasised is In re Silver Valley Mines . The only authority cited for the proposition that I have emphasised is In re John Tweddle & Co Ltd [1910] 2 KB 67. Daniell does not mention the later decision in In re John Tweddle & Co Ltd [1910] 2 KB 697.
John Tweddle arose under the Companies (Winding-up) Act 1890 (UK ). That legislation established a procedure whereby the court could order the public examination of any person concerning the affairs of the company, if the official receiver of a company subjected to a winding up by the court made a report to the court recommending such a public examination. An official receiver, who was also a liquidator of the company, submitted a report saying that he had formed the opinion that frauds had been committed in the promotion of the company, and identifying directors said to be parties to those frauds. One of these directors was publicly examined, following an order from a county court judge. The official receiver, in performance of what was held to be his statutory duty to do so (702), took part in that examination. The section empowering the examination to occur required that person to appear at his own expense, but continued "[ p]rovided always that if such person is, in the opinion of the Court, exculpated from any charges made or suggested against him, the court may allow him such costs as the court in its discretion may think fit " . Following the examination, the director applied, by notice of motion, to be exculpated from the charge of fraud. The official receiver was served with that notice of motion, appeared, and opposed the exculpation being granted. However, the judge granted the exculpated director's notice of motion and also ordered the official receiver to pay the director's costs of the examination. The company had no assets, so the effect of the order was (as the judge intended it to be) that the official receiver bear the costs personally.
The official receiver appealed to a Divisional Court. It is the judgment on that appeal that is reported at [1910] 2 KB 67. The appeal succeeded, on the grounds that the official receiver had been merely discharging the duties cast upon him by the Act, and thus there was no power to make an order against him. At 78 Darling J said: " he cannot be ordered to pay costs unless in the discharge of those duties he is guilty of some personal misconduct ", and that " I cannot find that the official receiver did anything but that which he was bound by the Act to do" . No question was raised concerning the competence of the appeal.
A further appeal by the director from the Divisional Court to the Court of Appeal succeeded only in part: In re John Tweddle & Co Ltd [1910] 2 KB 697. The Court of Appeal agreed that, insofar as the official receiver had been exercising his statutory functions in providing the report, and conducting the examination, there was no jurisdiction to make an order against him.
However, a new question was raised on appeal, concerning the costs of the application for exculpation. The Court of Appeal upheld the decision of the trial judge concerning that aspect of the costs. Cozens-Hardy MR said, at 705:
" I can see no justification for serving the official receiver, a mere officer of the Court discharging certain duties, with any such notice of motion. There is no duty imposed upon the official receiver to take any subsequent proceedings by way of defending his right or otherwise. He has discharged his duty when he has obtained the order for an examination and has conducted the examination. The Court, if it thinks fit, may desire that notice of an application for exculpation should be served upon him; but it is a very different thing to say that the applicant, the innocent director, is entitled to bring the official receiver before the Court and ask definitely for costs against him. Unfortunately here, the official receiver, who is also the liquidator, took (no doubt in perfectly good faith) a view which seems to me irregular, and in that sense improper. He accepted the position of a litigant. He appeared on the hearing of this application; he argued against the application; he tried to persuade the county court judge that [the director] was not entitled to be exculpated, and having taken up that position in a matter in which he was served and in which he did not allege to the county court judge that he ought not to have been there at all, it seems to me the case is one in which he appears as respondent to a proceeding in the Court in which he argues against the application, and argues unsuccessfully, and in the view of the learned judge wrongly. That being so, I see no reason to doubt that the learned county court judge had jurisdiction to order him to pay the costs of the application for exculpation; and certainly if he had jurisdiction to make the order, as I think he had, it is not a matter for appeal or one in which we should in any way interfere."
The judgments of Farwell LJ and Kennedy LJ are to similar effect.
In my view the emphasised part of the statement in Daniell at 1115 quoted at [87] above is too wide, and is not borne out by John Tweddle . John Tweddle did not consider the competency of the appeal at all, in either the Divisional Court or the Court of Appeal. The ultimate decision turned on the absence of jurisdiction to order costs (so far as obtaining and conducting the public examination was concerned) and on the liquidator having adopted the role of a party (so far as the application for exoneration was concerned). So far as the liquidator having adopted the role of a party was concerned, it turned on nothing more than a principle that costs usually follow the event. Of particular relevance for the present case, it was a case where there was no decision that there was misconduct of the liquidator in contesting the application for exoneration such that he should be denied the right of indemnity that he would usually have from the assets of the company. It was just the factual accident of there being no assets from which the liquidator could obtain indemnity that led to the result that he bore the costs of that application personally.
The House of Lords Rule of Practice
Some assistance in construing s 49 Judicature Act and its progeny can also be gained from Donald Campbell & Co v Pollak [1927] AC 732. It concerned the closely analogous rule of practice (as stated at 743) that there could be no appeal to the House of Lords on a question of costs that were in the discretion of the court below. At 740-741 Viscount Cave LC recognised that an appeal might lie:
- if an order denying costs was made contrary to a statute which gave a party a right to his costs;
- if the decision below was made without jurisdiction (including on the basis of taking into account an irrelevant consideration); or
- if the decision below was made on the basis of a wrong view of the law.
Viscount Cave's lengthy digest at 741-747 of numerous previous cases in which the House of Lords had permitted an appeal concerning costs amounts, in its totality, to a major contribution towards an ostensive definition of the expression " costs that are in the discretion of the court below " . Viscount Haldane at 754, Viscount Dunedin at 754, Lord Atkinson at 769 and Lord Blanesburgh at 801 concurred in the Lord Chancellor's analysis of the cases. His Lordship's digest included (at 743) Burkett v Spray (1829) 1 Russ & My 113; 39 ER 44, in which Lord Lyndhurst had said " an appeal would lie in respect of costs, if any principle were involved, and they were not merely given as consequential on the decree ."
Viscount Haldane, at 750, recognised as one of the circumstances where an appeal could be brought concerning a costs decision without leave included " instances in which the order as to the costs has been made personally against parties who have as a matter of law a right to be exempted from them, such as trustees and mortgagees ". Viscount Haldane found, at 750-751, the guiding principle to be:
"All of these are exceptions in which a substantive right is said to have been violated, as distinguished from cases in which it is claimed that there has been what is merely a non-judicial and in that restricted sense improper exercise of the function of the judge to the appellant's disadvantage. Mere error in law not of a special character is accordingly in this view not enough to give ground for an appeal."
Lord Blanesburgh at 802-803 said, obiter:
"... no mere rule of practice could ever be supposed to go so far as to embrace within its operation questions touching the contractual right of trustees and mortgagees to their costs and I can hardly suppose that any of your Lordships would desire to lay down or support a rule for this House which would deprive either a trustee or mortgagee of the privilege of having enforced here, if they have been denied elsewhere, his rights in this matter, as defined once for all by Lord Selborne in Coterell v Stratton and by Sir George Jessel MR in Turner v Hancock."
In his dissenting judgment at 759, Viscount Sumner recognised that:
" Step by step costs given by statute, costs of trustees, and costs of incumbrancers by way of mortgage or otherwise, were decided to be outside the rule. They were the subjects, respectively, of rights by law vested in certain parties antecedently to and independently of any Court's exercise of its discretion in their favour."
Donald Campbell should be read against the background to that, by then, Order LXV, r 1 stated, so far as presently material:
"Subject to the provisions of the Act and these Rules, the costs of and incident to all proceedings in the Supreme Court ... shall be in the discretion of the court or judge; provided that nothing herein contained shall deprive an executor, administrator, trustee, or mortgagee who has not unreasonably instituted or carried on or resisted any proceedings, of any right to costs out of a particular estate or fund to which he would be entitled according to the rules hitherto acted upon in the Chancery Division: Provided also that, where any action, cause, matter, or issue is tried with a jury, the costs shall follow the event, unless the judge by whom such action, cause, matter, or issue is tried, or the court, shall, for good cause, otherwise order."
That Order gave a trustee a positive right to be paid costs of litigation provided he had not acted unreasonably concerning the proceedings.
There is no provision directly comparable to that Order, so far as entitlement of an Australian liquidator now to costs of litigation is concerned. However, there is a different source of an entitlement of a liquidator to indemnity concerning expenses (including expenses of litigation). It arises under s 556 Corporations Act , which I have discussed at [36]-[37] above. As there mentioned, the right of indemnity under s 556 applies to costs the liquidator pays, but has an in-built limitation, to " expenses properly incurred" .
Decision Re Costs of Liquidator's Own Action
A theme can be seen in the authorities that have construed the sections from which s 102(2)(c) SC Act is derived. If a judge has held that a person who occupies an office in which he would ordinarily have a right of indemnity from a fund he is administering has misconducted himself in the performance of his office, and in consequence the right of indemnity does not apply concerning certain costs that the person is liable to pay, then the decision of the judge is not one as to " costs ... which are in the discretion of the court " . This theme emerges from the cases relating to trustees, executors and liquidators.
The costs that the liquidator was being asked to bear personally in the instant case were ones that, so far as CST's claim to receive those costs because it had won the litigation was concerned, and so far as CST's claim that it should receive those costs on the indemnity basis was concerned, the trial judge had power to award under the court's power under s 98 Civil Procedure Act . It is a matter of chance that the same judge who decided those questions also had power to decide, as a matter of the court's control over internal matters in the liquidation, whether the liquidator was entitled to indemnity from the fund of company assets that the liquidator was administering. In principle, when the judge was deciding whether to allow indemnity from the company's assets concerning the costs payable inter partes , he was in no different situation to that in which Kekewich J had been in In re Beddoe when deciding whether the trustee was entitled to indemnity concerning the costs that he had been ordered to pay in the action in the Queen's Bench Division. For the reasons given by Lindley and Bowen LJJ in In re Beddoe ([67] ff above), when the decision is being made about whether the liquidator is entitled to indemnity from the fund, the costs in question have the character of charges and expenses, not of costs that are in the discretion of the court that is making that particular decision. Thus, insofar as the Costs Judgment in the present case deprived the liquidator of indemnity concerning those costs that he would be personally liable to pay by reason of having lost the claims that he brought based on the statutory jurisdiction to make orders in favour of a liquidator, it is not a decision as to " costs ... which are in the discretion of the court " . That is a sufficient reason why no leave to appeal is needed to appeal against that aspect of the Costs Judgment.
The cases relating to the right of appeal of a person charged with contempt who has been acquitted of the charge, and of a legal practitioner who has conducted litigation but not been a party, provide examples of how there can be a right to appeal without leave when an order as to costs is (or legitimately could only have been) based upon a finding of misconduct on the part of the person against whom the order is made. The right of appeal exists because an order requiring payment of costs in those circumstances is not as to "costs which are in the discretion of the court". It is not necessary to decide whether a right of appeal exists concerning all cases where a costs order is based upon a finding of misconduct, when the more narrow basis for decision identified in the preceding two paragraphs is available.
The present case is distinguishable from Wilkinson v Kenny and Martinovic v Chief Executive, Queensland Transport . The judge had made findings in the Substantive Judgment about various factual matters leading to his conclusion that the Originating Process should be dismissed, and those findings were the basis on which he reached his conclusion in the Costs Judgment. However, the Substantive Judgment had not considered whether the liquidator had, by reason of those facts, acted in a way that was anything other than reasonable and proper, by reference to the standards in accordance with which the law requires liquidators to conduct themselves.
Other Non-Parties
The situation concerning the costs of those claims that the liquidator caused the company to bring is somewhat more complex. This is because there is a diversity of judicial opinion on whether, in general, leave to appeal is necessary when a non-party is ordered to pay the costs of litigation.
In re Land and Property Trust Co plc [1991] 1 WLR 601 concerned the construction of s 18(1)(f) Supreme Court Act 1981 (UK), set out at [75] above . A trial judge had dismissed a petition presented by a company for an administration order, and ordered that the company be wound up. The judge ordered the directors of the company to pay the costs personally of a creditor of the company who had opposed the petition. Amongst the reasons that the judge gave for ordering the directors to pay the costs was that the company was insolvent and the application for administration was brought " without proper consideration of its purposes and was persisted in in the face of overwhelming opposition and without reason " (603). The legislative provision under which the judge did so was s 51(1) of the Supreme Court Act 1981 (UK) , which read:
"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."
The House of Lords had construed that section as permitting a costs order to be made against a non-party: Aiden Shipping Co Ltd v Interbulk Ltd [ 1986] AC 965.
The directors applied to the judge for leave to appeal against the part of his order that related to costs, but the judge refused the application.
Notwithstanding that refusal, the directors filed an appeal against the costs order. Nicholls LJ (Lord Donaldson of Lymington concurring) decided a preliminary question concerning the competency of the appeal. His Lordship held that an appeal from an order that a non-party pay the costs of a successful party was not an appeal relating only to costs. He said, at 605, that:
"... section 18(1)( f ) is to be understood and read as applying only to orders for costs made against persons who were parties to the proceedings in which the costs in question were incurred. Costs orders against persons who were not parties to the relevant proceedings are not orders which relate 'only to costs' within the meaning of that expression in the paragraph. Such orders necessarily relate to matters other than merely the outcome of the proceedings. There has to be something more, some conduct by the non-party which makes it just that he should bear the costs of the litigation to which he was not a party." (emphasis added)
His Lordship had, in substance, two reasons for reaching that conclusion. The first was that a provision like s 18(1)(f) had been present in legislation for a very long time, while recognition of the power to make costs orders against non-parties was a comparative novelty. The second was that, in any event, the bar imposed by s 18(1)(f) was not an absolute bar concerning all appeals on the topic of costs. His Lordship said, at 605:
" In Scherer v Counting Instruments Ltd (Note) [1986] 1 WLR 615, 621-622, Buckley LJ, in giving the judgment of this court, enunciated 10 propositions regarding orders as to costs. His tenth proposition was:
'If, however, [the judge] has made [an order regarding costs] having no relevant grounds available or having in fact acted on extraneous grounds, this court can entertain an appeal without leave and can make what order it thinks fit.'
Subject to two modifications not material for present purposes, those propositions were approved by the House of Lords in Bankamerica Finance Ltd v Nock [1988] AC 1002: see per Lord Brandon of Oakbrook, at p 1010."
Mr Kerr SC, counsel for CST, submitted that In re Land and Property Trust Co did not apply to the present case because in fact the liquidator was a party to the proceedings that resulted in the Costs Judgment. I have outlined at [20] above the factual basis for that argument. However, strictly, it was irregular to have a single originating process in which different plaintiffs made different claims. I doubt that In re Land and Property Trust Co can be brushed aside so simply.
In re Land and Property Trust Co has had a mixed reception in the Australian courts.
Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2003] QCA 516; [2004] 2 Qd R 11 involved a situation where the appellant had not been a party named on the record of litigation in the court below, but had financed the plaintiffs' bringing of the action, and was entitled to 35% of the proceeds. The judge below had dismissed the claims of the plaintiffs, and had ordered the appellant to pay the costs of the proceedings on an indemnity basis. The appellant had conceded in the court below that the judge had power to make such a costs order against it. It purported to appeal against the costs order alone. The Queensland Court of Appeal (de Jersey CJ, Davies JA and Mullins J) held that the appeal was incompetent by reason of s 253 Supreme Court Act 1995 (Qld) . That section provides:
"No order made by any judge of the said court by the consent of parties or as to costs only which by law are left to the discretion of the judge shall be subject to any appeal except by leave of the judge making such order."
That provision is not materially different to s 49 Judicature Act (UK) . The court in Emanuel distinguished In re Land and Property Trust Co and Wilkinson v Kenny on the basis that the Queensland section was worded differently to the English section that had been applied in those cases, and held that leave was necessary to appeal against an order that a non-party pay costs. The ratio at [8] was:
"The difference rests in the inclusion in the English provision, by an amendment made in 1981, of the following underlined words: "appeal ... from any order ... relating only to costs". The Queensland provision speaks of an "order ... as to costs only". The words "relating to" have conventionally been regarded as of wide ambit, and in our view the Queensland prescription, "as to", contemplates a somewhat narrower focus. Accordingly, the English approach is not necessarily susceptible of ready application to the Queensland provision." (emphasis in original)
Their Honours went on to observe that there was in any event an expanded definition of " party" in the Supreme Court Act1995 (Qld) , which would extend to someone in the position of the appellant.
However, as mentioned earlier, their Honours went on at [11] to distinguish the situation before them from the situation where a costs order had been made against a solicitor:
"[Counsel submitted] that [s 253] does not apply to a costs order made against a solicitor... : cf. In re Bradford, Thursby and Farish(1883) 15 QBD 635, 636; Thompson v Fraser [1986] 1 WLR 17; Michael v Freehill Hollingdale and Page (1990) 3 WAR 223, 228, 234; Etna v Arif [1999] 2 VR 353, 379. To warrant such an order, the court must necessarily be satisfied there has been some dereliction on the part of the solicitor, and that may be regarded as the feature to which the order primarily relates. That approach is therefore distinguishable because historically considered as uniquely referable to the disciplinary jurisdiction of the court, and not to the court's general discretionary jurisdiction as to costs. It is accepted that there must be an appeal without leave in respect of a finding of professional misconduct or negligence (Etna v Arif , p.379)."
In Oxer v Astec Paints Australia Pty Ltd [2008] SASC 64, Debelle J distinguished Emanuel Management and held that leave was not necessary under the relevant South Australian rule when a non-party to litigation sought to appeal against a costs order that had been made against it . The relevant rule of the South Australian Supreme Court was r 281. It said:
"Subject to any statutory provision to the contrary, an appeal to the Court lies by permission of the Court if -
(a) ...
(b) the appeal is limited to a question of costs.
Debelle J said at [6]-[8]:
"[6] The terms of paragraph (b) are clear. If the only questions in the appeal relate to questions about costs, it is necessary to obtain permission to appeal. The only issues in this appeal concerns an issue as to costs, namely, who is liable to pay the costs of these proceedings. Paragraph (b) is expressed in terms so wide that they are capable of including any kind of question as to costs. I do not think that is the intent of the rule. Paragraph (b) is intended to do the work of what was formerly s 50(2) of the Supreme Court Act . Section 50(2)(b) provided that permission to appeal was required from an order " as to costs only which by law are left to the discretion of the judge ". That provision was expressed in terms which were in all material respects the same as s 18(1)(f) of the Supreme Court Act 1981 of England. The English provision was considered by the Court of Appeal in re Land and Property Trust Co plc [1991] 3 All ER 409. The Court held that s 18(1)(f) did not require permission to appeal in the case of a costs order against a person not a party to the proceedings. Nicholls LJ, with whom Lord Donaldson MR agreed, said:
To my mind, the making of a costs order against a non-party is such an unusual and far reaching departure from the normal course of events to be expected in litigation that I cannot believe Parliament had this type of case in mind at all when enacting s 18(1)(f) or the corresponding section in the preceding Acts. It would indeed be remarkable if a 'stranger' to proceedings could be ordered to pay the costs of a party to those proceedings and have no right of appeal against that order in any circumstances unless the judge who made the order saw fit to give leave to appeal. Parliament cannot have intended that such a person should have no right of appeal at all whatever the circumstances and however severe or draconian the effect of the order might be.
In my view, s 18(1)(f) is to be understood and read as applying only to orders for costs made against persons who were parties to the proceedings in which the costs in question were incurred. Costs orders against persons who were not parties to the relevant proceedings are not orders which relate 'only to costs' within the meaning of that expression in the paragraph. Such orders necessarily relate to matters other than merely the outcome of the proceedings. There has to be something more, some conduct by the non-party which makes it just that he should bear the costs of the litigation to which he was not a party.
These observations are apposite to the operation of paragraph (b) of r 281.
[7] The requirement to obtain permission to appeal on a question of costs exists for the purpose of limiting appeals as to costs to those cases where the judge has not exercised the discretion as to costs judicially: Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 811; Jones v McKie [1964] 1 WLR 960 at 966; Copping v ANZ McCaughan Ltd (1995) 63 SASR 523 at 528-529. It is not the intention of the rule to require leave to appeal where the issue as to costs falls outside the question whether an order for costs should be made between party and party and the terms of that order. For that reason, permission is not required if the issue is whether or not an order as to costs was in fact made: Gaskin v Heinicke [2007] SASC 256. In Thompson v Fraser (Practice Note) [1986] 1 WLR 17 permission to appeal was not required where a solicitor had been ordered to pay all of the costs of possession proceedings. As Nicholls LJ said, the requirement of permission to appeal could result in a stranger to proceedings having no remedy by way of appeal if leave were to be denied. That would result in manifest injustice and, as his Lordship noted, be draconian in effect. These views were considered correct by Sir Thomas Bingham MR in Wilkinson v Kenny [1993] 1 WLR 963 at 972. In Emanuel Management Pty Ltd (in liq) v Fosters Brewing Group Ltd [2004] 2 Qd R 11, the Full Court of the Supreme Court of Queensland did not apply the reasoning in re Land and Property Trust Co plc because the terms of the relevant Queensland legislation differed from s 18(1)(f) of the English legislation. That decision can be distinguished on that ground.
[8] In my view, Rule 285 [sic - semble 281] was intended to have the meaning and effect as expressed in s 50(2)(b) which is in the same terms as s 18(1)(f). For that reason it is appropriate to apply the reasoning of the Court of Appeal in re Land and Property Trust Co plc . The appeal in this case, therefore, lies to the Full Court and the appellant does not require permission to appeal but has a right of appeal.
In other words, the difference between " order ... as to costs only" in the Queensland legislation, and " order ... relating only to costs" in s 18(1)(f) of the English legislation, that the Queensland Court of Appeal had seen as enabling the decision in In r e Land and Property Trust Co to be distinguished, was one that Debelle J saw as not being material. However, it must be recognised that the South Australian provision that Debelle J was considering was framed in terms of whether " the appeal is limited to a question of costs" - ie, costs is the only subject matter that will arise on the appeal. That is not necessarily the same as whether the order appealed against is " as to costs only which are in the discretion of the court " .
Other decisions (including, of particular relevance in an intermediate court of appeal, HPM Pty Ltd v Fear [2002] WASCA 249, which was decided the day before Emanuel ) refer to In re Land and Property Trust Co without adverse comment.
When that is the current state of Australian authority on whether, as a matter of generality, leave to appeal is needed when a costs order is made against a non-party, I would prefer not to express a preference for either Emanuel Management or Oxer Paints . In In re Land and Property Trust Co and Oxer Paints the judges took account of the apparent injustice that would arise if a non-party were ordered to pay costs, refused leave to appeal by the judge who made that order, and then was totally without an avenue to question the decision. That factor does not weigh as heavily in construing s 102(2)(c), where it is always open to the Court of Appeal to grant leave in an appropriate case. However there may be room for argument about whether that is a total answer. There may also be room to argue about whether a costs order based on a finding that a non-party has misconducted the litigation, vis-a-vis the opposite party, is in itself enough to give a right of appeal. If it were, it might then be seen as anomalous that a costs order against a non-party not based on any misconduct should not be subject to appeal.
I prefer to leave those questions for another day. It suffices to decide the present case that, insofar as the judge made an order that had the effect that the liquidator was to pay the costs of those claims that he had caused the company to make, he was exercising a particular power of the court to control the conduct of liquidators. His order was based on his finding that the conduct of the liquidator in causing the company to bring claims in its own name was deficient. Thus, insofar as it related to claims that the liquidator had caused Arena to bring in its own name, his order was not one " as to costs ... which are in the discretion of the court" within the meaning of s 102(2)(c) SC Act .
The combined effect of [47], [100] and [121] of this judgment is that the liquidator had a right to appeal against the whole of the Costs Judgment without leave.
Procedural Matters
A Notice of Intention to Appeal was filed within 28 days after the date of the Costs Judgment (and thus within time, under UCPR 51.8). A Summons seeking leave to appeal was filed on 27 January 2011. That is also within time, under UCPR 51.9 and 51.10 read together, and with the one-day extension of time under UCPR 1.11(4) by reason of the Registry being closed on Australia Day. If the Court had ordered that leave to appeal be granted, one of the orders made granting that leave would have been one requiring the Draft Notice of Appeal to be filed within a particular time. The effect of deciding that leave to appeal is unnecessary is that when a Notice of Appeal is filed, it will be out of time. In the unusual situation of the present case it is appropriate to extend the time for filing a Notice of Appeal.
The application for leave to appeal, and the draft Notice of Appeal, named both the liquidator and Arena as appellants. While Arena is a necessary party to the appeal, the liquidator's interests in bringing the appeal are directly opposed to those of Arena - if the liquidator succeeds in the appeal, the effect will be that Arena will have a liability that it would not have if the liquidator were to lose the appeal. The Notice of Appeal that is filed should name the liquidator only as appellant, and Arena should be named as an additional respondent.
While it will be necessary for Arena to file an appearance in the appeal, I am not aware of any reason to believe that CST will not continue to oppose the appeal, and conduct its opposition competently. Thus, my present impression is that the liquidator would be justified in causing Arena to take no steps, and incur no expense, in the appeal beyond the filing of a submitting appearance. However, I am not confident that I know all the facts that are relevant to deciding what role Arena should play in the appeal. Thus whether Arena takes an active role in the appeal, and if so how decisions can be made on its behalf concerning the appeal, should be left for the liquidator to take such steps as he might be advised.
At the hearing on 25 March 2011 there was discussion about a desire of the liquidator to raise a ground of appeal, concerning denial of procedural fairness in not permitting the liquidator to tender some additional evidence and not holding an oral hearing concerning liability for costs. No such ground of appeal had been taken in the draft Notice of Appeal contained in the White Book. Documents filed with the court, in accordance with a direction given on 25 March 2011, showed that while there was significant agreement concerning facts relevant to an argument on that topic, agreement was not complete. Thus the liquidator may need to take out a notice of motion if he wishes the court to receive additional evidence on the appeal.
At the hearing on 25 March 2011 counsel for the liquidator sought to read an affidavit of the liquidator that went to the proposed procedural fairness ground of appeal. The court received the affidavit on the basis that it would rule on its admissibility in due course. When the decision has been reached that the liquidator has an appeal as of right it is unnecessary to rule on the admissibility of the affidavit.
The application for leave to appeal has proved to be unnecessary. The Court, not one of the parties, raised the question of whether leave to appeal was necessary. Once it was raised, the Respondent argued that leave to appeal was necessary, and should be refused. The Court came to a view, which is announced on the day of the hearing, that if leave to appeal were necessary, the Court would grant it. In all those circumstances, the appropriate order is that the costs of the application for leave to appeal be costs in the appeal.
Depending on the outcome of the appeal concerning whether the liquidator should have been denied indemnity from the company assets, there might be a further question concerning leave to appeal. That cannot be decided at this stage. It would arise only if the judges deciding the appeal were to come to the view that the liquidator should be denied indemnity from the company assets, and the liquidator wished to contend that the trial judge's order requiring costs to be paid on the indemnity basis was incorrect. In that situation, a question might arise about whether the decision in Wheeler v Somerfield [1966] 2 QB 94 is correct. Wheeler held that if an appeal is brought as of right, and that appeal fails concerning substantive matters, but the appellant wishes to argue that the trial judge's decision concerning costs was in any event wrong, the appellate court can deal with that question of costs without leave being required. Wheeler has been followed in this Court, in Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [200]; Dasreef Pty Limited v Hawchar [2010] NSWCA 154 at [61]. However in Dasreef , and apparently also in Tyco, the attention of the court was not drawn to decisions in other intermediate courts of appeal that had declined to follow Wheeler , eg Re Golden Casket Art Union Office ; [1995] 2 Qd R 346 (where Fitzgerald P, Davies and McPherson JJA at 349 noted, amongst other things, that in Road Chalets Pty Ltd v Thornton Motors Pty Ltd (1986) 47 SASR 532 Zelling ACJ said Wheelerwas " against the whole course of reported cases for a century " ); Theophanous v Gillespie [2002] QCA 117 at [17]; Shadbolt v Wise [2005] QCA 443; [2006] 1 Qd R 553 at [35]-[36] per Keane JA (McPherson and Williams JJA agreeing); Remely v O'Shea [2008] QCA 78 at [79]-[80]. I mention at this stage the possibility of this matter arising as, if any party wishes to argue that Wheeler should not be followed, ample notice should be given so that consideration can be given to sitting a bench of five judges.
Orders
I propose the following orders:
(1) Declare that Randall Joubert was entitled to appeal as of right against the Costs Judgment, insofar as it held that he should bear personally the costs of the litigation in the court below.
(2) Direct that a Notice of Appeal, in the form of the draft Notice of Appeal contained in the White Book in this matter but modified by:
(a) removing Arena as an appellant and naming it as a respondent; and
(b) adding such ground of appeal concerning denial of procedural fairness in relation to the Costs Judgment as Mr Joubert might be advised;
be filed within 21 days from the date of delivery of this judgment
(3) Extend time for filing such a Notice of Appeal to 21 days from the date of delivery of this judgment.
(4) Costs of the application for leave to appeal in this matter to be costs in the appeal.
(5) Direct that the documents recording the extent of the parties' agreement on facts relevant to the proposed procedural fairness be included in the Red Book for the appeal.
MACFARLAN JA: I agree with Campbell JA. As his Honour points out, the order that the applicants seek to challenge was not an order "as to costs only which are in the discretion of the Court" (s 101(2)(c), SC Act ) because it was at least in part based upon the Court's power of control over internal matters in the liquidation of the subject company. The use of this power does not involve an exercise of discretion, unlike the Court's discretionary power under s 98, SC Act to make orders for costs in connection with proceedings in the Court.
Accordingly the applicants did not require leave to appeal and were entitled to appeal as of right. I agree with his Honour that it is appropriate to grant an extension of time to the applicants to exercise this right.
**********
Decision last updated: 17 October 2012
45
26
16