Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (in liq)

[2002] NSWSC 491

CITATION:	Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (In Liq) & John Star; Bluecrest Holdings Pty Ltd v Karren Holdings Pty Ltd & Minskie Holdings Pty Ltd [2002] NSWSC 491
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3978/98; 4639/98
HEARING DATE(S):	7 May 2002
JUDGMENT DATE:	4 June 2002
PARTIES :	Australian Security Estates Pty Ltd (Plaintiff in 3978/98) Bluecrest Holdings Pty Ltd (In Liq) (Defendant in 3978/98) John Star (Defendant in 3978/98) Bluecrest Holdings Pty Ltd (Plaintiff in 4639/98) Karren Holdings Pty Ltd (Defendant in 4639/98) Minskie Holdings Pty Ltd (Defendant in 4639/98)
JUDGMENT OF:	Bergin J

COUNSEL :	M R Pesman (Plaintiff) F P Carnovale (Defendant)
SOLICITORS:	Watson Mangioni (Plaintiff) Gillis Delaney Brown (Defendant)
CATCHWORDS:	Whether leave should be granted to companies in liquidation to proceed against another company in liquidation for the sole purpose of seeking to obtain a costs order against a liquidator as a non-party in a voluntary winding up - Whether the applicant is required to call evidence to establish a reasonably arguable case that such an order should be made - "Officer of the Court" - definition in Part 1, r 8 of the Supreme Court Rules 1970 (NSW) excludes solicitors, barristers and liquidators - whether excluded from the term "its own officers" in Part 52A, r 4(5)(e) - whether liquidator in voluntary winding up is one of Court's "own officers".
LEGISLATION CITED:	Corporations Act 2000 Corporations Law Corporations Law Rules 2000 (NSW) Federal Court of Australia Act 1976 (Cth) Home Building Act 1989 (NSW) Supreme Court Act 1970 (NSW) Supreme Court Rules 1970
CASES CITED:	Australian Forest Managers v Bramley & Ors (1996) 19 ACSR 398 Bent v Gough (1992) 108 ALR 131 Biposo, Re; Condon v Rogers (No. 3) (1995) 17 ACSR 730 Bolton & Co, In Re; Salisbury-Jones & Dale's Case [1895] 1 Ch 333 City & Suburban Pty Ltd v Smith (Liq of Conpac) (Aust) Pty Ltd (In Liq), unreported, FedCt (Vic), 0933/98, Merkel J, 31 July 1998 Cresvale Far East Ltd (In Liq) v Cresvale Securities Lts & Ors (No. 2) (2001) 39 ACSR 622 David Lloyd & Co, In Re; Lloyd v David Lloyd (1877) 6 Ch D 339 Egankarra Pty Ltd v Vince (1990) 2 ACSR 463 Giant Resources Ltd, Re [1991] 1 Qd R 107 J J Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liq) (1986) 11 ACLR 224 Knight v F P Special Assets Ltd (1992) 174 CLR 178 Leicester v Walton, unreported, 40354/95, NSWCA, Priestley, Sheller and Cole JJA, 22 November 1995 Meehan & Anor v Stockmans Australian Cafe (Holdings) Pty Ltd & Anor (1996) 22 ACSR 123 Ogilvie-Grant v East (1983) 7 ACLR 669 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1996) 26 NSWLR 234 Wentworth v Wentworth (1999) 46 NSWLR 300 Wentworth v Wentworth (2001) 52 NSWLR 602 Wilson Lovatt & Sons Ltd, Re [1977] 1 All ER 274 Wridgemont Display Homes Pty Ltd, Re (1992) 117 ALR 479
DECISION:	See para [66]

- 20 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

4 JUNE 2002

3978/98 AUSTRALIAN SECURITY ESTATES PTY LTD V BLUECREST HOLDINGS PTY LTD (IN LIQUIDATION) & JOHN STAR

4639/98 BLUECREST HOLDINGS PTY LTD V KARREN HOLDINGS PTY LTD & MINSKIE HOLDINGS PTY LTD

JUDGMENT

1 Proceedings numbered 3978/98 were commenced in the Equity Division by Summons filed on 18 September 1998 by Australian Security Estates Pty Ltd (ASE). The defendants to that Summons are Bluecrest Holdings Pty Ltd (In Liquidation) (Bluecrest) and John Edward Star (Mr Star). Mr Star was appointed liquidator of Bluecrest on 3 July 1998 by resolution in a voluntary winding up.

2 The Summons sought orders that Bluecrest withdraw two caveats over two properties owned by ASE and that Mr Star sign and deliver such withdrawals to ASE. The Summons also sought leave pursuant to s 471B of the then Corporations Law to proceed against Bluecrest.

3 On 17 December 1998 the Court granted leave to Bluecrest and Mr Star to file a Defence and Cross-Claim and to join Atifame Pty Ltd (Atifame) as second cross-defendant. On the same date Bluecrest filed a Defence and Cross-Claim in which the cross-claimants were named as Bluecrest and Star and the cross-defendants were named as ASE and Atifame. The Cross-Claim sought declarations that ASE was indebted to Bluecrest and that Bluecrest had a caveatable interest in a property owned by ASE. It also claimed in damages.

4 Proceedings numbered 4639/98 were commenced on 13 November 1998 in the Equity Division by Summons filed by Bluecrest as plaintiff against Karren Holdings Pty Ltd (Karren Holdings) and Minskie Holdings Pty Ltd (Minskie Holdings) as defendants. Bluecrest sought orders extending two caveats over two properties owned by Karren Holdings and Minskie Holdings.

5 On 11 December 1998 the Court granted leave, by consent, to Karren Holdings and Minskie Holdings to join Mr Star as a cross-defendant to the proceedings and to file and serve any Cross-Claims against Bluecrest and Mr Star by 16 December 1998. It is apparent that although leave was granted no such Cross-Claims were ever filed.

6 On 17 December 1998 the Court granted leave to Bluecrest to file an Amended Summons in 4639/98 which added a claim for damages. The Court also made consent orders that proceedings 3978/98 and 4639/98 be heard together and that the evidence in one be evidence in the other. The Court also ordered, by consent, that both proceedings be referred pursuant to Pt 72 of the Supreme Court Rules to Mr Colin J Walker for enquiry and report into certain questions in relation to building and accounting issues in relation to building work which had been performed by Bluecrest on five properties. Two of these properties were owned by ASE, one was owned by Atifame, one was owned by Karren Holdings and another was owned by Minskie Holdings. ASE, Atifame, Karren Holdings and Minskie Holdings have been referred to throughout the proceedings as the owner companies or the Byrnes Group.

7 Mr Walker resigned as Referee and on 10 March 1999 I made consent orders referring the whole of both proceedings to the Honourable Andrew Rogers QC (the Referee) for enquiry and report. The orders included orders that Bluecrest and Mr Star file and serve Points of Claim, that the Byrnes Group file and serve Points of Claim and Points of Defence to Bluecrest and Mr Star’s Points of Claim and that Bluecrest and Mr Star file and serve Points of Defence to the Byrnes Groups Points of Claim.

8 The Byrnes Group claimed (a) damages and other monies from Bluecrest arising out of alleged breaches by Bluecrest of building contracts between it and each of the companies in the Byrnes Groups; (b) damages from Bluecrest arising from the lodgment of caveats by Bluecrest over the properties the subject of the building contracts and (c) damages from Mr Star arising from the lodgment by Bluecrest of the same caveats.

9 Bluecrest and Mr Star claimed against each of the companies in the Byrnes Group (a) damages, referred to as a claim in debt, or a quantum meruit in respect of building work carried out by Bluecrest for each of the companies in the Byrnes Group; (b) interest; (c) costs and (d) an extension of the caveats lodged by Bluecrest over the five properties the subject of the four building contracts.

10 On 19 May 1999 the Referee issued his First Interim Report which was adopted by the Court on 8 June 1999. By the adoption of that report the Referee’s finding that the building contracts were made on the dates which they bore was adopted. This was a finding adverse to the contention of the Byrne Group that the building contracts were entered into other than on that date. The significance of that finding was that the insurance provisions of the Home Building Act 1989 (NSW) (the Act) which came into force on 1 May 1997 did not operate in relation to the contracts other than the contract between Bluecrest and Atifame.

11 The matter proceeded before the Referee and on 29 August 2000 he published a Second Interim Report. That report records the Referee’s decision that Bluecrest had breached s 7(2)(a) of the Act in that the contract did not contain the name of the person holding the relevant licence. The effect of such a finding is that, pursuant to s 10(3) of the Act, Bluecrest is not able to maintain any contractual claim but is able to make a quantum meruit claim. A further consequence of that finding is that Bluecrest had no caveatable interest in the properties.

12 The Referee published a Third Draft Interim Report in November 2000. That report was not signed by the Referee until 20 March 2002. There is nothing before me to explain why such a delay occurred. That report records the Referee’s decision that the Byrne Group is liable to pay approximately $520,000 to Bluecrest, subject to the Byrne Group’s claims for cost overruns and damages. The Byrnes Group’s claims were stood over by the Referee pending the adoption of the Reports.

13 Bluecrest was in liquidation when both sets of proceedings were commenced. Orders pursuant to s 471B of the then Corporations Law, granting leave to commence or continue proceedings against Bluecrest were made as follows:

(a) On 18 September 1998 Hodgson CJ in Eq granted leave to ASE to commence and continue proceedings up to and including 22 September 1998;
(b) On 6 October 1998 Registrar Berecry granted leave to ASE to continue proceedings up to and including 30 September 1998. It appears that no order was made in relation to the period 22 September to 6 October 1998;
(c) On 30 October 1998 Registrar Berecry granted leave to ASE to continue the proceedings up to and including 13 November 1998;
(d) On 13 November 1998 Registrar Berecry granted leave to ASE to continue the proceedings up to and including 11 December 1998;
(e) On 11 December 1998 Registrar Berecry granted leave to Karren Holdings and Minskie Holdings to commence and continue proceedings until further order.

14 Of the four companies in the Byrnes Group only Karren Holdings and Minskie Holdings currently have leave to continue proceedings against Bluecrest and that order was granted until further order. ASE has not had any leave to continue the proceedings against Bluecrest and Mr Star since 11 December 1998 and Atifame has never been granted any leave to commence or continue proceedings against Bluecrest.

15 ASE went into liquidation on 3 March 2000 and the other three companies in the Byrnes Group went into liquidation on 11 September 2000. No leave has been granted to Bluecrest or Mr Star to continue the proceedings against the Byrnes Group. These liquidations occurred after the Referee had completed the hearing of the referral, except the Byrnes Group’s claims for cost overruns and damages, but before he issued his Third Draft Interim Report.

16 It is unsatisfactory that ASE did not obtain leave to proceed against Bluecrest before the matter was referred to Mr Walker in December 1998 and to the Referee in March 1999. The purpose of a provision by which a party is able to obtain leave has been referred to in a number of cases: Re David Lloyd and Co (1877) 6 Ch D 339 and JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (1986) 11 ACLR 224. McPherson J in Ogilvie–Grant v East (1983) 7 ACLR 669, in dealing with a stay of proceedings in a compulsory winding up, said that without the relevant restriction a company in liquidation would be subjected to a multiplicity of actions, both expensive and time-consuming as well as in some cases unnecessary (at 672). His Honour continued:

It, of course follows that it is quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, but in the past they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed.

17 Lehane J in Meehan and Anor v Stockmans Australian Café (Holdings) Pty Ltd and Anor (1996) 22 ACSR 123 referred to other factors that may be taken into account in deciding whether to grant leave, including where a great deal may have been done and substantial costs incurred, which if leave were not granted, would be wasted (at 127).

18 Bluecrest was granted leave for the limited purpose of arguing the Motion which seeks to restrain the Byrnes Group from proceeding with a Motion filed 19 April 2002 in which it seeks orders for the adoption of the Referee’s Second and Third Interim Reports. The Byrnes Group Motion was placed in the Short Matters List and called on for hearing before me on 7 May 2002. Mr Pesman, of counsel, appeared for the Byrnes Group and Mr Carnovale, of counsel, appeared for Bluecrest and Mr Star.

19 Bluecrest submitted that the Byrnes Group should be restrained because all parties are now insolvent and it is an agreed fact that there is no possibility that any party could recover any judgment from any opposing party. Mr Pesman candidly admitted that the only reason his clients are pursuing any application to adopt the Reports and to proceed with the litigation is to attempt to obtain a costs order against Mr Star personally. In this regard I have already made a consent order granting Mr Star leave to discontinue his Cross-Claim, as second cross-claimant, in 3978/98. Mr Pesman submitted that any entitlement his clients may have against Mr Star “arises not because he is a party to the proceedings but as a result of his position as liquidator of Bluecrest” (para 6(c)). The Byrnes Group are pursuing Mr Star as a non-party, notwithstanding that he was joined as a defendant in 3978/98 in which an order was sought requiring him to sign and deliver withdrawals of caveats. The Motion has been argued on the basis that the costs order that would ultimately be sought would be against a non-party.

20 Bluecrest does not move to have the Referee’s Reports adopted and the Byrnes Group moves to have only parts of the Reports adopted and only for the purpose of enabling it to pursue its claims for costs of completing the projects before the Referee and of pursuing Mr Star for costs.

21 The nature of the proceedings essentially involved building disputes with Bluecrest as the Builder and the Byrnes Group as the principal. It is apparent from the material before me that in December 1997 the Byrnes Group effectively took over the building sites from Bluecrest, utilising the equipment already on site and paying Bluecrest’s subcontractors directly. The Referee found:

In the light of all of the evidence, the Byrnes Group contracts were not progressing to achieve Practical Completion within the specified periods even prior to December 1997 when the non-payment of progress certificates became acute I am not prepared to report that the non-payment of monies by the Byrnes group entitled Bluecrest to the necessary extensions of time.

22 Mr Pesman submitted that such a finding means that Bluecrest had not proceeded with the contract with due diligence. There was in respect of one of the properties a substantial discrepancy between the actual location of a building slab and the site where it should have been located. The Referee described this error as “so gross that all other things being equal the notice in respect of “that project “ was well founded when taken with other defects in workmanship.”

23 On a second project the siting of the boundary set back was wrong and the ground floor slab was out of place. There were also no emergency exits from the car park and the internal walls, both in the garage and the upstairs unit, were positioned incorrectly. The Referee found that these defects were “incapable of remedy” and “which again, all other things being equal, would have properly grounded a notice terminating employment”. The Referee found that the defects in workmanship at two other sites were sufficiently serious as to warrant notice to terminate Bluecrest’s employment.

24 Section 5 of the report is headed “Was Giving Notices Reasonable and in Good Faith?” The Referee stated that the Byrnes Group was required to act reasonably in giving a termination notice and referred to Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 as authority for that proposition. The Referee concluded that the Byrnes Group had not acted reasonably in issuing the Notices of Intention to Determine and the Notices Determining Bluecrest’s Employment and noted that Bluecrest was undoubtedly behind in the execution of the contracts and at least so far as two of them were concerned, it had failed to act in a competent manner.

25 The Referee said:

Nonetheless, any question of increase in progress of work after December 1997 did not rest with Bluecrest but with the Byrnes Group as it was controlling both the sites and payments. Thus, when the Notices of Termination were given on 19 February 1998, the Byrnes Group had been in control for at least 2 ½ months … the question remains whether the Byrnes Group, acting reasonably, could in good faith give the Notices of Termination of employment in mid-February. To all intents and purposes, it had terminated the employment of Bluecrest two and a half months earlier but, by not giving notice then, it had Bluecrest continuing to work on the projects for the additional period accumulating liabilities to the subcontractors to the extent that the Byrnes Group had not paid them directly. As well, Bluecrest continued to have its fixed overhead expenses including site managers. By making the payments direct to subcontractors the Byrnes Group was denying to Bluecrest its profit component in the progress certificate issued by the WT Partnership and thereby aggravating its cash flow problems.
Many of the defects alleged it was said were capable of rectification by the subcontractors concerned. However, by taking over the sites the Byrnes Group denied Bluecrest the opportunity of instructing the subcontractors to carry out any necessary rectification work and apparently did not itself require the subcontractors to do so.
The Notices were not issued reasonably or in good faith but were a means of the Byrnes Group avoiding its obligations on the one hand and obtaining the infrastructure of Bluecrest.
… The clear choice that was made by the Byrnes Group was to take over direction and control of the work that was subsequently carried out, in respect of which progress certificates were issued and a claim of set-off made for the cost of the work. That was a clear election or, if you will, acceptance of the benefit of the work.
Again the material which was on the site and not yet affixed was utilised by the Byrnes Group. There was certainly freedom to accept or reject the use of material. The submission that there was no acceptance of the work done by Bluecrest owes everything to the ingenuity of counsel and nothing to the actions of the Byrnes Group.
In the circumstances, the Notices were each invalid. Bluecrest is entitled to maintain its claim in quantum meruit in respect of the projects excluding Mount Colah.

26 The Referee then considered the quantum meruit claim made by Bluecrest and set out the amounts falling due to be paid by members of the Byrnes Group to Bluecrest under that heading. There is no challenge to the quantum meruit findings of the Referee. It is conceded by Mr Pesman that if Section 5 of the report remains and is adopted by the Court any further claims by way of costs overruns of his client will fall away.

27 All of this seems now to be fairly academic. But for the claim the Byrnes Group might make against Mr Star personally to pay its costs it is conceded that no parties will be able to recover any judgment or any costs. The question for determination in this Motion is whether in these circumstances, the proceedings should continue.

28 Section 76(1) of the Supreme Court Act 1970 (NSW) provides that subject to the Rules costs are in the discretion of the Court. Pt 52A, rule 4 limits the circumstances in which costs may be awarded against a person who is not a party. Rule 4 provides relevantly:

(1) The powers and discretions of the Court under section 76 of the Act (which relates to costs generally) shall be exercised subject to and in accordance with this Part.

(2) Subject to subrule (5), the Court shall not, in the exercise of its powers and discretions under section 76 of the Act, make any order for costs against a person who is not a party.
(3) Subject to subrule (4), rule 4A and rule 1A, a person shall not be made a party for the purpose of making an application for costs against the person.
(4) Subrule (3) shall not apply -
(a) where the person is otherwise a proper party; or
(b) to a claim for relief against the person under section 78 of
the Act.

(5) Subrule (2) shall not limit the power of the Court to make an
order -

(a) under rule 43 or rule 7(f);

………….
(e) in exercise of its supervisory jurisdiction over its own officers; …
(6) Save as mentioned in subrules (1) to (5), this Part has effect subject to the Act and to the rules and subject to any other Act.

29 The definition of “officer of the Court” was introduced into Part 1, rule 8 of the Supreme Court Rules 1970 (the Rules) on 21 May 1999 (amendment 328; Gaz 61, 21 May 1999, p 3489). It provides:

Officer of the Court does not include a solicitor, barrister or liquidator.

30 The Explanatory Note stated that the object of the amendment was to “clarify the meaning of “officer of the Court” in the rules”: (Gaz 61 p 3491).

31 It may be that the genesis of this amendment to the Rules is to be found in Wentworth v Wentworth at first instance, (1999) 46 NSWLR 300. In that case Santow J considered an application by the plaintiff against a Deputy Registrar of this Court. Santow J had set aside certain of the Deputy Registrar’s determinations on the taxation of the plaintiff’s bill of costs and declared severable certain of the interim certificates issued by the Deputy Registrar on the ground of reasonable apprehension of bias.

32 At para [15] his Honour found that the Deputy Registrar was an”officer” for the purposes of that term as it appeared in sub-rule (5)(e). His Honour also set out what he saw as the “governing principles” in relation to the exercise of discretion to award costs against a non-party. Those that are relevant to this case are: (1) that the discretion is to be exercised judicially and in accordance with general legal principles pertaining to the law of costs; (2) the critical context, that is, the exercise by the Court of its supervisory jurisdiction over its own officers, is affected by whether immunity is available to the officer depending upon whether the function is judicial, quasi-judicial or merely administrative; (3) improper conduct may be a factor but is not a necessary feature, and (4) such an order should be approached with caution (at par [26]).

33 Santow J’s judgment was delivered in April 1999 prior to the gazettal of the definition of “officer of the Court” in May 1999. His Honour said at para [52]:

[52] In the same way an examination order connected with a winding up carried out by a registrar is an integral part of the court’s processes. It occurs under the supervision of the Court as an incident of the judicial process of a winding up. “Although a function might be characterized as administrative if conferred upon an administrative agency, a corresponding function might be characterized as judicial if conferred upon a Court”: Gould v Brown (at 388 – 389); citing R v Davison (1954) 90 CLR 353. While the taxing officer is not a judicial officer, clearly enough his or her functions are conferred on that officer as an officer of the Court. This not in the sense that a solicitor or barrister is an officer of the Court but as someone who is part of its structure (emphasis added).

34 The appeal from Santow J was heard after the introduction of the definition of “officer of the Court”. On appeal, (2001) 52 NSWLR 602, Heydon JA after referring to the abolition of the traditional categories of jurisdiction to order costs against non-parties said at 636 - 637:

It follows from Pt 52A, r 4 that the only possible source of power to order costs against the Taxing Officer was Pt 52A, r 4(5)(e). Part 1, r 8 provides: “officers of the Court does not include a solicitor, barrister or liquidator.” It is clear that both the Act and the Rules contemplate registrars as being “officers of the Court.”

… There are difficulties in the construction of Pt 52A, r 4(5)(e) …
Rather, the point of Pt 52A, r 4(3) is to prevent evasion of the generality of the prohibition enacted in Pt 52A, r 4(2) on obtaining costs orders against persons who are not parties. It appears to have been thought that there was a risk of the prohibition being evaded by joining the non-party whom it is desired to make the object of the costs orders by simply joining that non-party as a party. That evasion is prohibited by Pt 52A, r 4(3). But that prohibition in Pt 52A, r 4(3) has a limitation where the non-party is “otherwise a proper party” and a non-party will be “otherwise a proper party” if the non-party falls within one of the paragraphs of Pt 52A, r 4(5). Hence if it is desired to proceed against a non-party within one of those classes, the prohibition on joinder does not apply, and the general principles stated in News Ltd v Australian Rugby Football League Ltd require joinder.

35 Fitzgerald JA said at 608:

Part 52A, r 4(2) and r 5(e) present more difficulty than the appellant’s submission suggests. One problem is that it is unclear who are court “officers” for the purpose of Pt 52A, r 4(5)(e). While there is a considerable body of law dealing with the court’s power to make costs orders against solicitors in proceedings to which they are not parties on the basis that they are officers of the court (see, for example, Myers v Elman [1940] AC 282; Aiden Shipping ; Knight ) the definition of “officer of the Court” in Pt 1, r 8 and the specific provisions with respect to costs orders against lawyers in proceedings in which they are not parties suggests that Pt 52, r 4 (5)(e) is not concerned solely with costs orders against lawyers if it is concerned with them at all: see s 76C of the Supreme Court Act …
… In other contexts, it has been held that a receiver appointed by the court is a court “officer” ( Freeman v Trimble (1906) 6 SR (NSW) 133; 23 WN (NSW) 45; Rogers v Commins (1906) 24 WN (NSW) 3; Horne v Leigh (1906) 7 SR (NSW) 51; 23 WN (NSW) 242) but that a referee appointed under s 72 is not ( Xuereb v Viola (1989) 18 NSWLR 453 at 465-466. The distinguishing characteristics of a court officer who is amenable to the court’s supervisory jurisdiction have not been precisely and comprehensively defined…
Part 52A, r 4(5)(e) refers to the court’s “supervisory jurisdiction over its own officers” but neither the Supreme Court Act nor the Rules contain a clear indication of the nature and extent of that jurisdiction and, in particular, of the court’s power to make costs orders against its officers other than lawyers. The court’s jurisdiction, including both its jurisdiction under s 23 of the Supreme Court Act and its inherent jurisdiction, is undoubtedly broad and flexible, but (constitutional limitations aside) is not unlimited: Reid v Howard (1995) 184 CLR 1 at 16…
… The final problem associated with Pt 52A, r 4(2) and r (5)(e) to which I propose to refer is that their meaning is ambiguous. On one possible view the two provisions in conjunction simply preserve whatever power the Court had apart from s 76 of the Supreme Court Act to make costs order against its officers in the exercise of its “supervisory jurisdiction” subject to any limitations on that power. An alternative view is that the effect of Pt 52A, r 4(2) and r 5(e) is that the Court has the unqualified power to make costs orders against its officers subject only to discretionary factors and principles developed to govern the exercise of the discretion to ensure that the exercise of the power is confined within proper limits: see Knight (at 185, 205); Aiden Shipping (at 975).

36 In Cresvale Far East Ltd (in Liq) v Cresvale Securities Ltd & Ors (No 2) (2001) 39 ACSR 622, Austin J considered an application by the plaintiff to have the administrator under a deed of company arrangement, who was the second defendant in the proceedings, pay the plaintiff’s and the third defendant’s costs personally. After referring to Mason CJ and Deane J’s judgment in Knight v F P Special Assets Ltd (1992) 174 CLR 178 in which their Honours said at 192-193 that where a non-party has played an active part and has an interest in the litigation, an order against the non-party “should be” made “if the interests of justice require that it be made,” Austin J said at [31]:

That category of case, if it remained, would obviously be germane to the position of an administrator under a deed who conducts litigation in the name of the company under administration. But according to Heydon JA in Wentworth, that category has been abolished, along with some of the other categories enumerated in Knight by Mason CJ and Deane J at CLR 187-8; ALR 594; ACSR 10. The only remaining categories in which costs may be awarded against a non-party are those expressly stated in Pt 52A r 4(5), since it seems as a matter of construction that the rule is intended to confine the exercise of the court’s power to the situations stipulated in subr (5): Leicester v Walton (unreported, CA(NSW), Full Court, No CA 40354/95, 7 November 1995, BC9501770).

37 In Leicester v Walton, the case cited by Austin J in para [31], the Court of Appeal (Priestley, Sheller and Cole JJA) said at 12 of BC9501770:

The Court’s power to award costs is now statutory and it is to the statute, to the rules of the Court and to any other Act, that one must look to find the extent of the Court’s jurisdiction: Knight v F P Special Assets Ltd (1992) 174 CLR 178. The Court has no inherent jurisdiction in respect of costs beyond this. It is important to note as Mason CJ and Deane J remarked of s 58 of the Queensland Supreme Court Act 1867 in Knight v F P Special Assets Ltd at 183, that the area of operation of s 76 necessarily depends upon the scope, as it exists from time to time, of other legislative provisions dealing with the award of costs.
… But, the rules of Court dealing with the award of costs in cases governed by s 76, have the effect of reducing the scope of the power conferred by that section.

38 In Leicester v Walton the Court considered its power to make an order against a solicitor who had been ignorant of the court rules. In the case of a solicitor s 76C of the Supreme Court Act1970 (NSW) empowers the Court at any stage of the proceedings to make orders against a solicitor “whose serious neglect, serious incompetence or serious misconduct delays, or contributes to delaying” the proceedings. Thus there is a specific statutory power for the Court to make costs orders against solicitors who are non-parties. Part 52A, rule 43 also deals with the Court’s power in this regard. This is reflected in the exception in Part 52A, rule (4) subrule (5)(a). The Court also has power under Rule 43A to make costs orders against barristers who are non-parties, however there is no exception in Rule (4) (5) in relation of Rule 43A, which is curious in the light of the inclusion of Rule 43 in subparagraph (a).

39 In Cresvale Austin J referred to a number of authorities in the area and in particular to Re Biposo Pty Ltd; Condon v Rogers (No 3) (1995) 17 ACSR 730. In that case the company had been placed in voluntary administration and a meeting of creditors resolved that it be wound up. The voluntary administrators became the liquidators and some creditors of the company made an application under s 503 of the Corporations Law for the removal of the liquidators, who appeared as respondents to that application and opposed it.

40 Young J made the order for removal of the liquidators and, although finding that they had inadequately supervised the persons who were acting from day to day and that they failed to appreciate problems that would be caused by over fraternisation with a particular creditor, declined to make an order that they pay the costs of the creditors personally. Young J said at 739:

As to costs, Mr Coles QC, for the liquidators, submitted that a survey of the cases, though not all of them were entirely consistent, showed that the general rule was that unless a liquidator had been removed on the ground of corruption or maladministration the liquidator was entitled to his costs out of the assets of the company and that the opponents costs also came out of the assets.

41 In Cresvale Austin J said:

[62] In my opinion the “general rule” enunciated by Young J in Re Biposo was intended by his Honour to be a guideline for the exercise of discretion rather than a rule of law, given the generally discretionary nature of orders for costs. It may be that in the case of a court-appointed liquidator the guideline is very strong, since the liquidator is appointed by the Court as its officer to wind up the company on the court’s behalf. In those circumstances one would expect the liquidator’s liability to be limited to the assets of the company in liquidation except in extreme circumstances, and therefore that the court will routinely limit the liquidators liability for costs as unsuccessful defendant to the assets of the company, even where the assets may not be adequate to meet the costs liability.
[63] In a voluntary winding up, the appointment of a liquidator is consensual but a liquidator’s duties and powers are prescribed by the Corporations Act 2001 (Cth) , and there are elements of supervision by the court. Again, therefore, it may be appropriate for the court in the normal case to protect the liquidator/defendant from personal liability when making the order for costs, even if the successful litigant opposes the course and the assets may be insufficient to cover the liability. That, at any rate, was the approach taken by Young J in Re Biposo, although English authority may suggest a different approach.

42 Biposo was similar to the circumstances of Bluecrest in this case, in that the winding up was voluntary. Young J, although very unimpressed with the liquidator’s handling of the liquidation, was satisfied that the liquidators had not behaved in a corrupt manner nor was their conduct “sufficiently odious” to justify an award of costs against them personally. In Cresvale Austin J referred to Merkel J’s judgment in City & Suburban Pty Ltd v Smith (Liq of Conpac) (Aust) Pty Ltd (In Liq) (unreported, Fed Ct (Vic), 31 July 1998, 0933/98) in which his Honour referred to costs being “unreasonably or improperly incurred.” Austin J agreed with Merkel J’s approach that it was appropriate to make an order for costs against an unsuccessful liquidator/defendant without limitation to the assets of the company, where the liquidator had behaved unreasonably or improperly but there had been no corruption or maladministration: Cresvale at [57].

43 In dealing with Pt 52A, r 4(5)(e) in Cresvale Austin J also said:

[32] One of the preserved categories in which an order for costs may be made against a non-party is “in the exercise of its supervisory jurisdiction over its own officers”: Pt 52A r 4(5)(e). Since an official liquidator in a Court-ordered winding up is an officer of the Court, subpara (e) has the effect of preserving the Court’s jurisdiction to make an order for costs against such a liquidator where the liquidator is not a party to the proceedings, in an appropriate case. But subpara (e) is not available against an administrator, who is not an officer of the Court.

44 Sub-rule (5) was inserted into the Rule by an amendment in 1994 (amendment 285: Gaz 83, 24 June 1994, p 3203). The definition of “officers of the court” in Part 1, r 8 was inserted into the Rules before Austin J’s decision in Cresvale. In the obiter observation in par [32] that Part 52A, r 4(5)(e) preserved the Court’s jurisdiction to make an order for costs against a liquidator, Austin J did not consider the definition of “officer of the Court” in Part 1, rule 8.

45 The Corporations Act 2001 (Cth) refers to liquidators exercising the powers of the Court “as an officer of the Court and subject to the control of the Court”: s 488 (1). The Corporations Law Rules 2000 (NSW) also refer to a liquidator exercising powers when appointed by the Court “as an officer of the Court and subject to the control of the Court”: Rule 7.10. Section 477 of the Corporations Act, provides the general and particular powers of “court-appointed” liquidators. Section 477(6) provides:

477 (6) [Court to control exercise of powers] 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 o proposed exercise of any of those powers.

46 In a voluntary winding up the Court may appoint a liquidator if there is no liquidator acting and the Court may, on cause shown, remove a liquidator and appoint another liquidator (ss 502 & 503). The powers and duties of a liquidator in a voluntary winding up include exercising “any of the powers that this Act confers on a liquidator in a winding up in insolvency or by the Court”; s 506(1)(b). Section 506(1A) applies ss 477(2A) and (2B) to a liquidator in a voluntary winding up. The Court may inquire into a liquidator’s conduct under s 536(1) of the Corporations Act.

47 In Egankarra Pty Ltd v Vince (1990) 2 ASCR 463 Fullager J considered that he had a discretion under the Victorian counterparts of ss 477(6) and 536(1) of the Corporations Law to order that a liquidator pay costs personally: Bent v Gough (1992) 108 ALR 131 per Black CJ at 137. In that case the liquidator was a party to the proceeding. There does not seem to be any provision within the Corporations Act expressly giving power to the Court to make a costs order against a liquidator who is not a party to proceedings.

48 Section 1335(2) of the Corporations Act provides:

1335 (2) [Court to Direct on Burden of Costs] The costs of any proceedings before a Court under this Act is to be borne by such party to the proceedings as the Court, in its discretion, directs.

The Butterworths’ editorial note in respect of this subsection that the word “is” should be read as “are” makes it grammatically more palatable. Section 1335(2) does not empower the Court to make orders against a non-party. Jenkinson J in Re Wridgemont Display Homes Pty Ltd (1992) 117 ALR 479 referred to Bent v Gough and Knight v F P Special Assets Ltd and said that in his opinion the reasoning of the Full Court and the High Court compelled the conclusion that s 43 of the Federal Court of Australia Act 1976 (Cth) did confer a power to award costs against a person not a party to the proceedings (at 480, 481). Although recognizing s 1335(2) as an obstacle to such an order being made against a non-party, Jenkinson J said at 482:

In my opinion the obstacle which s 1335(2) presents to the exercise of the jurisdiction of the court over costs against a person not a party to the proceeding may, and in a proper case should, be obviated by exercise of the power conferred by O 71, r 10(4) in a case where the court concludes that “a person who is or claims to be a creditor, contributory or officer of the body corporate” to which the proceeding relates ought to bear costs of that proceeding.

49 The Federal Court Rules do not contain any Rule similar to Part 52A, rule 4 of the Supreme Court Rules. There is also no rule similar to the Supreme Court Rule definition of “Officer of the Court”.

50 In Australian Forest Managers v Bramley and Ors (1996) 19 ACSR 398 Lindgren J dealt with three issues. The first was whether the proceedings were “under” the Corporations Law of New South Wales for the purpose of sub-section 1335(2) of the Law. His Honour answered “yes” to that question. The second issue was if the proceedings were under the Law for the purpose of sub-section 1335(2), did that have the effect of depriving the Court of the power which, it was common ground, it would otherwise have under s 43 of the Federal Court of Australia Act 1976 (Cth) to order that the costs of the proceeding be paid by a non-party? In respect of that second issue Lindgren J referred to Wridgemont and agreed with Jenkinson J’s construction of s 1335(2). The respondents before Lindgren J argued alternatively that the Court had power by reason of sub-section 477(6) or sub-section 536(1) of the Law, or under the “supervisory power which it had over officers of the Court.”

51 Lindgren J said at page 407:

Sub-section 1335 (2) of the Law is mandatory as to the order for costs to be made in this proceeding “under” the Law. If the Court has jurisdiction to make a relevant order against either of the liquidators under sub 477(6) or subs 536(1) the order must be in the general nature of an order that the liquidator exonerate or indemnify the company in liquidation or put it in funds and should, if not must, be the subject of a distinct “proceeding” against the liquidator.

52 His Honour expressed the view that sub-section 477(6) did not on its proper construction empower a Court at the conclusion of the proceeding to make an order in that proceeding that the liquidator pay personally the previously incurred costs of the parties against whom the liquidator exercised the power to bring the proceedings in the name and on the behalf of the company. In the alternative his Honour found that the general provision of subs 477(6) yields to the specific provision of subs 1335(2) which is inconsistent with the making of an order of that kind in a proceeding under the Law.

53 As to the powers that the Court may have in respect of an inquiry pursuant to subs 536(1) his Honour said at page 407-408:

Even if the words “such action as it thinks fit” in subs 536(1) empower the court after inquiry to make orders of this kind sought in the present motions, it would not be procedurally fair to the liquidators to reconstruct, notionally and retrospectively, as an inquiry under subs 536(1), the proceeding which has taken place on the motion.

54 Of the submission that the Court could make a costs order against the liquidator in exercising its supervisory power Lindgren J said at 408:

The submission that the court had the requisite power as part of supervisory power which the court has over its officers was not developed. Whatever may be the nature and scope of such a power, I doubt that it extends to requiring a court officer to bear a litigant’s costs of a proceeding which is completed but for dismissal. In any event any such general power must be read subject to the terms on which jurisdiction is granted in relation to a matter. As noted earlier, in the present case those terms include the specific mandatory provision relating to costs found in subs 1335(2) and, it may be added, the terms of subss 477(6) and 536(1) of the Law. I am not persuaded that after allowing for the scope of these provisions there is a residual supervisory power in the court enabling me to make the orders sought on the respondent’s motions.
… The terms of subs 1335(2) of the Law are mandatory: once a proceeding before a Court is seen to be one “under” the Law, sub 1335(2) requires the costs of the proceeding to be borne by a party or parties. The Court’s discretion relates only to how the costs are to be so borne. Such terms are inconsistent with an exercise of the power given by s 43 of the FCA Act to order a non-party to pay costs. The excepting words in sub 43(2) of the FCA Act (“except as provided by any other Act”) are apt to refer to, inter alia, a provision of such a nature.

55 Although the submission before Lindgren J in respect of a supervisory power over “its officers” was not developed it is apparent from what is extracted above that Lindgren J accepted that the liquidators were “officers of the Court”. As I have said there is no definition within the Rules of the Federal Court excluding liquidators from such a definition.

56 In Cresvale Austin J also referred to cases in which Courts have used their “exceptional jurisdiction” to award costs against a liquidator whose conduct has provided good reason to do so: InRe Bolton & Co; Salisbury-Jones & Dale’s Case [1895] 1 Ch 333 at 334; Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 282. His Honour found that those authorities are inapplicable in New South Wales to permit the Court to award costs against an administrator by reason of the restrictions imposed by Part 52A, r 4(5). That conclusion was reached on the basis that the administrator was not amenable to supervision as an “officer of the Court”.

57 It was submitted by Mr Carnovale that as this was a voluntary winding up the exception in sub-rule (5)(e) does not operate because the court would not be exercising its “supervisory jurisdiction over one of its own officers” in the sense contemplated by that sub-rule. Mr Carnovale did not refer at all to the definition of “officer of the Court”.

58 Pt 52A, r 4(5)(e) refers to the Court’s “own officers”. There is ample reference to court appointed liquidators as “officers of the Court” and in Re Giant Resources Ltd [1991] 1 Qd R 107 Ryan J referred to a liquidator as one of the court’s “own officers” (at 117). I respectfully agree with Fitzgerald JA’s view in Wentworth v Wentworth that there is no clear indication of the nature and extent of the supervisory jurisdiction referred to in Part 52A, r 4(5)(e). I am of the view that the lack of clarity is exacerbated by the definition “officer of the court” in Part 1, rule 8. Santow J was satisfied that the taxing officer/Deputy Registrar was one of the Court’s “own officers” within the meaning of that term in subrule (5)(e). The balance of the Rules refer to “officer of the Court” on a number of occasions Including Part 1 Rule 9A; Part 3 Rule 1(c); Part 9 Rule 14; Part 27 Rules 1A &1C; Part 36 Rules 6(6),10,12,13,16; Part 37 Rule 2(1), 4 &11; Part 40 Rule 2; Part 43 Rule 1(1); Part 50 Rule 3(2);Part 64 Rule 8 & Part 72 Rule 7. in contexts that in my view intend to refer to officers within the Court “structure”, to use Santow J’s description in Wentworth v Wentworth at para [52].

59 The term “its own officers” is used only twice in the Rules and that is in Part 52, rule 4(5)(e) and in Part 52A, rule 4(5)(e). As I have said there are specific rules in relation to the awarding of costs against solicitors and barristers who are non-parties but there is no rule specifically dealing with liquidators. Additionally in the case of solicitors there is a separate exception in subrule (5)(a). That may tend to suggest that “its own officers” excludes solicitors. However for the term “its own officers” to include barristers, who are the subject of a separate rule (43A) but not an exclusion in subrule (5), and liquidators and not solicitors would be a little curious. I am of the view that the definition of “officer of the court” is intended to exclude solicitors, barristers and liquidators from all the other functions mentioned within the Rules for those officers within the court structure. It is not intended to exclude solicitors, barristers and liquidators from the capacity of the Court to award costs against them, as non-parties, when exercising its supervisory jurisdiction over not only them but also the officers within the court structure.

60 Although Austin J in Cresvale referred (at para [63]) to “elements” of supervision in a voluntary winding up I am not satisfied that the term “its own officers” in subrule (5)(e) includes a liquidator in a voluntary winding up. The term “its own officers” in relation to liquidators refers to court-appointed liquidators. Even if that is wrong I am satisfied, for the reasons below, that I should not grant leave to proceed.

61 A further submission was made by Bluecrest that in circumstances where ASE has not taken any steps to make application to obtain an order for security for costs, it would be most unlikely that a court would exercise its discretion to make an order against Mr Star personally in any event. In this respect reliance was placed upon the judgment of Mason CJ and Deane J in Knight v F P Special Assets Ltd (1992) 174 CLR 178 at 191:

The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction.

62 In this case Bluecrest submitted that it was clear from the commencement of proceedings that Bluecrest was in liquidation. It would have been appropriate and within the capacity of ASE to bring an application for security and none was brought.

63 Although this is a Motion to restrain the Byrnes Group, by way of refusing it leave to proceed with the Motion for the adoption of the Reports, it was in my view incumbent upon the Byrnes Group to have called some evidence to demonstrate a reasonably arguable case that a costs order would be made against Mr Star personally.

64 It is clear from Mr Pesman’s submission that the contemplated claim for costs against Mr Star is based solely on the prospect of the Byrnes Group being successful in firstly, obtaining an order for the adoption of the Referee’s Reports excluding Section 5 of the Third Interim Report, and secondly, succeeding in obtaining an award of damages in an amount greater than the amount awarded to Bluecrest by the Referee. If the Reports were adopted, even without Section 5, Bluecrest will have achieved some success making it difficult to conclude, at least at a prima facie level, that Mr Star’s conduct was unreasonable or improper.

65 I am satisfied that the Court is precluded from making a costs order against Mr Star personally unless there is a basis for doing so in Pt 52A, r 4(5). As he is a liquidator in a voluntary winding up and, I have concluded, not one of the Court’s “own officers” there is in my view no prospect of a costs order being made under that Rule. The Byrnes Group does not seek an order against Mr Star as a party. Even if that is wrong there is simply no evidence upon which I could conclude there is a reasonably arguable case that Mr Star’s conduct was in any way sufficiently “odious” or “unreasonable or improper” such as to justify a costs order against him personally. In those circumstances I intend to refuse the Brynes Group leave to proceed with their Motion to adopt the Referees’ Reports.

66 I make the following orders: (1) Such of the respondents as do not have leave under s 471B of the Corporations Law or Act to commence or continue proceedings against Bluecrest are refused leave to proceed and are restrained from continuing these proceedings against Bluecrest; (2) The leave granted to Karren Holdings and Minskie Holdings to commence or continue the proceedings against Bluecrest is revoked.

67 If the parties are unable to agree on a costs order in respect of this application I will hear argument on a date to be fixed.

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Last Modified: 06/05/2002