Beeson v Carrello as Liquidator of Gecko MANAGMENT Pty Ltd (in liq) - [2010] WASCA 155

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: BEESON -v- CARRELLO As Liquidator of GECKO MANAGMENT PTY LTD (in liq) [2010] WASCA 155

CORAM: PULLIN JA

HEARD: ON THE PAPERS

DELIVERED : 30 JULY 2010

FILE NO/S: CACV 141 of 2009

BETWEEN: MARK JOHN BEESON
First Appellant
LYNDON EDWARD DYSON
Second Appellant
DUNCAN NASH HANNAY
Third Appellant
AND
GIOVANNI MAURIZIO CARRELLO As Liquidator of GECKO MANAGMENT PTY LTD (IN LIQ)
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :MASTER SANDERSON
Citation  :BEESON -v- CARRELLO as liquidator of GECKO MANAGEMENT PTY LTD (in liq) (ACN 083 043 243) [2009] WASC 334
File No  :COR 42 of 2009

Catchwords:

Practice and procedure - Appeal discontinued - Whether parties should pay own costs or whether normal rule applied

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Appellant               :     No appearance
Second Appellant          :     No appearance
Third Appellant             :     No appearance
Respondent:     No appearance

Solicitors:

First Appellant               :     Haydn Robinson
Second Appellant          :     Haydn Robinson
Third Appellant             :     Haydn Robinson
Respondent:     Rowe Bristol Lawyers

Case(s) referred to in judgment(s):

Beeson v Carello As Liquidator of Gecko Management Pty Ltd (In liq) [2009] WASC 334
Bridgeport - Advisors and Asset Management Pty Ltd [2005] NSWSC 757; (2005) 221 ALR 146
Carter v Gartner [2003] FCA 653; (2003) 130 FCR 99
Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VR 469
Harvey v Liquidators of Normans Wines Ltd [2003] SASC 192
O'Neill v Mann [2000] FCA 1680
Re Newtell Ltd; Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 221 ALR 331

PULLIN JA: This appeal has been discontinued. Rule 59(4) of the Supreme Court (Court of Appeal) Rules 2005 (WA) (Court of Appeal Rules) states that unless a single judge orders otherwise, an appellant who discontinues an appeal must pay the respondent's costs in respect of the appeal which must be taxed if they are not agreed. The appellant has sought an order that each party pays its own costs which the respondent opposes. The parties have agreed that the application should be dealt with on the papers.
The background is as follows. On 12 March 2009 in COR 42 of 2009 on the application of the respondent as liquidator of Gecko Management Pty Ltd, orders were made for the issue of summons for the examination of the appellants. On 10 June 2009 the appellants applied for an order permitting access to affidavits filed in support of the examination summons and to have the summons set aside as an abuse of process. The first aspect was resolved and the appellants' application then proceeded to determine whether the summons issued by the liquidator was an abuse of process.
The further background details are set out in Master Sanderson's reasons for decision for dismissing the appellants' application and determining that the liquidator's summons should not be set aside: see Beeson v Carello As Liquidator of Gecko Management Pty Ltd (In liq) [2009] WASC 334. The master said:
To understand the nature of the claim of abuse of process it is necessary to provide some background facts. These facts were not in dispute and the summary which follows is taken from the affidavit of Haydn Ross Robinson sworn 11 June 2006 and filed in support of the application, and the applicants' outline of submission lodged 28 October 2009. Three companies, Swansdale Pty Ltd, Munkberg Pty Ltd and Russmex Pty Ltd, have instituted proceedings against, amongst others, two of the applicants Mr Beeson and Mr Dyson. This is action CIV 2156 of 2008. These proceedings came after Swansdale Pty Ltd and Munkberg Pty Ltd sued the applicants Mr Beeson and Mr Dyson, Gecko Management Pty Ltd and other defendants in other proceedings in CIV 2302 of 2005. Munkberg Pty Ltd and Swansdale Pty Ltd are both companies associated with or controlled by a Mr Hamilton and a Mr Pearson. The two companies seek an accounting in dealing with certain transactions by Gecko Management Pty Ltd and the conduct of the same by the applicants. In CIV 2156 of 2008 the plaintiffs are not proceeding against Gecko Management Pty Ltd. However, a comparison of the statements of claim in the two actions I have referred to indicates that the claim in CIV 2156 of 2008 is almost identical to the claim against Gecko Management Pty Ltd in CIV 2302 of 2005.
It is common ground between the parties that there is no benefit in the prosecution of the two actions for Gecko Management Pty Ltd or its creditors.
Persons associated with Swansdale Pty Ltd and Munkberg Pty Ltd are funding the liquidator. AustAsia Legal Pty Ltd acts for the liquidator. A Mr Galic is a director of AustAsia Legal Pty Ltd and he has acted as counsel for the liquidator in relation to the examination that has been conducted to date. Mr Galic also carries on business as Galic & Co. Galic & Co act for the plaintiffs in both CIV 2302 of 2005 and CIV 2156 of 2008.
Everyone accepts that when the examinations are complete Swansdale Pty Ltd and Munkberg Pty Ltd will have access to the transcript of those examinations. They will also have access to any documents tendered during the course of the examination. The applicants' concern is that Mr Galic will also have access to documents produced pursuant to the summonses that may not be tendered during the course of the examination. As I understand the applicants' submission, they say that this puts Mr Galic in a position of conflict and thus represents an abuse of process which warrants the summonses being set aside. During the course of argument, counsel for the applicants suggested that one possible solution may be to stay the summonses to allow the plaintiff to appoint alternative solicitors. Counsel conceded that were this to occur there would be no basis on which to set the summonses aside.
Examination summonses are an abuse of process if the predominant purpose cannot be characterised as being for the benefit of the corporation, its contributories or its creditors: see Bridgeport - Advisers and Assets Managers Pty Ltd [2005] NSWSC 757; (2005) 221 ALR 146 per Barrett J at [45]. Again there was no dispute between the parties as to the test to be applied. Both counsel were content to adopt the formulation by Barrett J in the Bridgeport decision.
In response to this application, the plaintiff swore an affidavit dated 9 September 2009. A number of aspects of his evidence are worth highlighting. First, the plaintiff says, as liquidator of the company, he is not interested in disputes between former directors of the company. He says that he is only interested in matters relating to the examinable affairs of the company and nothing else. There was a debtor/creditor relationship between the company and two companies, Rochwood Pty Ltd and Whitcrest Pty Ltd, of which Mr Beeson and Mr Dyson are directors. The plaintiff says that some creditors of the company got paid and others did not and that is the reason for his investigation.
He goes on to say that the examination is not a fishing expedition and is not being used for the benefit of any one particular creditor. He says the purpose of the examination is to investigate matters which are separate to the matters in dispute between the former directors of the company. He is concerned not to reveal too much detail about the examination for fear that it may be compromised.
I am satisfied that there is no abuse of process in this matter. There may be grounds for the applicants seeking an injunction to prevent Mr Galic from acting for the plaintiff in relation to the examination. Without wishing in any way to prejudge the issue, there may be a conflict of interest on Mr Galic's part. But that is a separate question to what is to be considered here. What I have to determine is whether or not the predominant purpose cannot be characterised as being for the benefit of the corporation, its contributories or its creditors. Based on the evidence of the plaintiff, the answer to that question cannot be in any doubt. There is no abuse of process and accordingly the summonses ought not be set aside [3] ‑ [10].
On 25 November 2009, the appellants appealed against the master's order dismissing their summons. On 1 December 2009, AustAsia Legal Pty Ltd filed a notice of the respondent's intention to take part in the appeal. On 21 December 2009, the appellant's case was filed, the grounds of appeal being:
1.The Learned Master erred in law and fact in failing to find that the conflict of Mr Galic and its effect did not:
1.1constitute an improper purpose; and
1.2did not otherwise give rise to an abuse of the Court's process.
2.Further, and in the alternative, the Learned Master erred in law in finding that all he had to determine was whether the predominant purpose of the Respondent was to be categorised as being for the benefit of a corporation its contributories and creditors.
3.The Learned Master erred in failing to find (or indeed consider) that the failure by the Respondent to disclose to the Court upon the application to issue the subject examination summonses the matters giving rise to Mr Galic's conflict ought to have been sufficient to aside the examination summonses.
4.The Learned Master erred in failing to find (or indeed consider) that the issuing of the examination summonses was an abuse of process consequent upon the prior institution of Supreme Court CIV 2302 of 2005 and CIV 2156 of 2008 and the funding of the liquidator for the examinations by the plaintiffs in those actions.
On 3 February 2010, a notice was filed by the respondent disclosing that he had changed solicitors to Rowe Bristol Lawyers. This notice was served on the appellants' lawyers along with a letter dated 3 February 2010 in which Rowe Bristol Lawyers advised the appellants' solicitors that Rowe Bristol Lawyers was in the process of reviewing documents and awaiting receipt of further relevant documents with a view to preparing the respondent's answer and preparing draft appeal indexes. The letter asked the appellants to confirm that as the respondent had appointed new solicitors, all issues the subject of the appeal had been resolved and on that basis the appellant would discontinue the appeal. If not, the appellants should advise what further issues they considered remained in dispute.
On the next day, 4 February 2010, Rowe Bristol Lawyers caused to be filed and served on the appellants' solicitors, a notice of change of solicitor in COR 42 of 2009. On 5 February 2010, there was a telephone conversation between Mr Bristol and Mr Robinson, the solicitor acting for the appellants in which Mr Bristol asked Mr Robinson whether the appellants would agree to discontinue the appeal without the need for the respondent to go to the time and expense of preparing their answer. During that conversation, Mr Robinson stated words to the effect that at that stage the appellants would not agree to a discontinuance of the appeal, that there may be further issues that his client wished to deal with in the course of the appeal and that the appellant still required the respondents to provide their answer if they intended opposing the appeal. On the basis of that conversation, Mr Bristol instructed counsel to proceed with the preparation of an answer which was finalised and filed and served on 12 February 2010. On 17 February 2010 the parties attended before a registrar at a directions hearing when an order was made extending the time for providing the respondent's answer to 12 February 2010.
On 18 March 2010, the appellants filed a discontinuance notice. Accompanying the discontinuance notice was an affidavit sworn by Mr Robinson in support of the current application for costs. The affidavit related some history.
Paragraphs 7 and 8 of the affidavit read:
7.The primary concern of the Appellants in COR 42 of 2009 was Mr Galic being appointed solicitor and counsel for the Respondent in relation to the examination summons. This was because Mr Galic acts as a solicitor for the Plaintiffs in CIV 2156 of 2008 and CIV 2302 of 2005…
8.Consequent upon Mr Galic being replaced by Rowe Bristol, this primary concern of the Appellants has been alleviated.
The affidavit said that this change of position made it unnecessary for the appellants to proceed with the appeal.
Paragraph 10 of the affidavit also read:
The appeal was to consider another issue that were of concern to the Appellants, that Mr Hamilton and Ms Pearson have agreed to fund the Respondent in the examination summonses and they are also behind the Plaintiffs in CIV 2156 of 2008 and CIV 2302 of 2005. As a result Mr Hamilton and Ms Pearson are funding 3 actions against the Appellants all of which relate to the same matter, that is the business relationship that existed between the first and second named Appellants and Mr Hamilton and Ms Pearson - that is arguably an abuse of process.
The affidavit stated that it was in support of the current application to displace the costs order that would otherwise be made or apply under r 59(4).
An affidavit was filed by Damian Peter Bristol of Rowe Bristol Lawyers on 12 February 2010 setting out part of the history which is referred to above. The affidavit stated that it was filed in opposition to the appellants' application for orders that the parties bear their own costs of the appeal.
In the General Division, proceedings may not be discontinued after the defence has been filed, without the leave of the court and the court has the power to grant leave upon such terms as to costs, or otherwise as may be just. See O 23 r 2 of the Rules of the Supreme Court 1971 (WA). This confers a wide discretion on the court. The conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs: McClure v City of Stirling [No 3] [2009] WASC 247 [4]; O'Neill v Mann [2000] FCA 1680. If the plaintiff obtains leave to discontinue the action in circumstances in which without trial, the plaintiff has secured from the defendant the relief sought in the proceedings, the court has the power to order the defendant to pay the costs of the proceedings. If, however, the plaintiff discontinues because the plaintiff cannot succeed, the plaintiff may be granted leave on terms that it pays the defendant's costs of the action: Garwolin Nominees Pty Ltd v Statewide Building Society [1984] VR 469, 472.
In the case of an appeal, r 59 of the Court of Appeal Rules reflects the policy that a party which has commenced proceedings and then discontinued, should have to pay the respondent the costs of the proceedings unless there is some reason why the appellant should not pay the costs. Factors that might be relevant in displacing the effect of the order are the considerations which are relevant in relation to the making of costs orders upon discontinuance in the general proceedings.
The appellant submits that it will be an abuse of process if the predominant purpose of an examination is a purpose foreign to the examinable affairs of the company or for the purpose of causing inconvenience or embarrassment or the infliction of costs: Bridgeport - Advisors and Asset Management Pty Ltd [2005] NSWSC 757; (2005) 221 ALR 146. The appellants accept that the mere fact that a creditor or another may obtain information or a collateral advantage does not of itself render the purpose of the examination improper: Carter v Gartner [2003] FCA 653; (2003) 130 FCR 99 [69].
In Minister for Immigration; Ex parte Lai Qin (1997) 186 CLR 622, 624, McHugh J was dealing with an application for costs by an applicant who had discontinued proceedings after the Minister decided to grant her a protection visa. His Honour said:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.
Later, his Honour said:
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile the proper exercise of the costs discretion will usually mean that the court will make no order as to the costs of the proceedings. This approach has been adopted in a large number of cases.
His Honour then asked himself the critical question which was whether or not the prosecutrix acted reasonably in bringing the proceedings and whether the respondents acted so unreasonably that it would be proper for the Minister to pay the whole or part of the costs of the proceedings. I adopt the approach of McHugh J as the guide to the determination of this application.
In this case, the appellant contends that the effect of r 59(4) should be displaced because it acted reasonably and gained what it set out to achieve, which was to have Mr Galic excluded. On the other hand, the respondent submits that the appeal would have been dismissed because the conflict and forensic advantage apprehended by the appellant in Mr Galic acting in an examination in future, was a matter relevant to that future examination. The respondent submits that the argument raised about Mr Galic's future involvement was not a matter relevant to the obtaining of the mandatory order for examination under s 596A of the Corporations Act 2001 (Cth). Reference was made to Carter v Gartner [48] ‑ [61]. The respondent submitted that the application was misconceived and premature and that it was mere speculation that Mr Galic would allow a conflict to arise. They referred to Harvey v Liquidators of Normans Wines Ltd [2003] SASC 192 [34] ‑ [35]. The respondent says that it decided to appoint new solicitors as a practical solution to the appeal and in effect submit that the appellants acted unreasonably in instituting the appeal and in any event acted unreasonably in compelling the respondent to incur further costs once a change of solicitors had taken place.
The master's observation in his reasons for decision that there was no abuse of process was correct. The legal principles relevant to the type of application which was before the master was distilled in the judgment of Lander J in Re Newtell Ltd; Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 221 ALR 331 (Ryan & Crennan JJ concurring). The relevant passage was quoted by Barrett J in Bridgeport's case at [45]. Relevantly, Lander J said that the question whether in any particular case an applicant has used the procedure involved in gaining an order of the court summonsing a person for examination abusively, will depend upon the applicant's purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose. The fact that Mr Galic was acting may, as the master said, have provided grounds for the appellants to seek an injunction against him (that is, to prevent a breach of the implied undertaking not to use documents or information for a collateral purpose). See Harvey [34]. That was however, only a matter of hypothesis. I agree that the issue about whether Mr Galic should have acted or not was a separate question as to whether the examination order should be set aside, which depended upon determining whether there was any improper purpose in the liquidator seeking the order. The master correctly said that what he had to determine was whether or not the predominant purpose could be characterised as being for the benefit of the corporation, its contributories or its creditors and as to that, the master was in no doubt.

In my opinion, the appellants acted unreasonably in seeking to prevent Mr Galic acting by seeking to set aside the examination order. In any event, even if that conclusion were wrong, the appellants acted unreasonably in acting in a way which required the respondent to brief counsel, prepare, settle, file and serve an answer and attend on a directions hearing after the change of solicitor was filed and served. On that basis, there is nothing to justify departure from the provisions of r 59(4) of the Court of Appeal Rules. As a result, the appellants must pay the respondent's costs of the appeal to be taxed if not agreed.