Duskwood Pty Ltd v Bellara Willows Pty Ltd
[2001] WASC 281
DUSKWOOD PTY LTD -v- BELLARA WILLOWS PTY LTD & ORS [2001] WASC 281
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 281 | |
| Case No: | CIV:2310/1998 | 28 AUGUST 2001 | |
| Coram: | STEYTLER J | 24/10/01 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Application for award of costs against non-party dismissed | ||
| A | |||
| PDF Version |
| Parties: | DUSKWOOD PTY LTD BELLARA WILLOWS PTY LTD COLIN HENRY MADDEN GOH CHEE KHEN |
Catchwords: | Costs Award of costs against non-party Circumstances in which order of that kind might be made Relevance of failure to apply for security for costs or to give timely warning of proposed application |
Legislation: | Nil |
Case References: | Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965 Flinn v Flinn [1999] 3 VR 712 In re Land and Property Trust Co plc (No 3) [1991] BCLC 856 In re Land and Property Trust Co plc [1991] 1 WLR 601 Knight v F P Special Assets Ltd (1992) 174 CLR 178 Symphony Group plc v Hodgson [1994] QB 179 Taylor v Pace Developments Ltd [1991] BCC 406 Vestris v Cashman (1998) 72 SASR 449 Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 Yates v Boland [2000] FCA 1895 Bischof v Adams [1992] 2 VR 198 National Justice Compania Naviera SA v Prudential Assurance Co Ltd - the Ikarian Reefer [2000] 1 All ER 37 Nordstern Allgemeine Versicherungs AG v Internav Ltd [1999] 2 Lloyd's Rep 139 Smith v Madden (1946) 73 CLR 129 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
BELLARA WILLOWS PTY LTD
First Defendant
COLIN HENRY MADDEN
Second Defendant
GOH CHEE KHEN
Third Defendant
- Plaintiff
AND
BELLARA WILLOWS PTY LTD
Defendant
(Page 2)
Catchwords:
Costs - Award of costs against non-party - Circumstances in which order of that kind might be made - Relevance of failure to apply for security for costs or to give timely warning of proposed application
Legislation:
Nil
Result:
Application for award of costs against non-party dismissed
Category: A
Representation:
CIV 2310 of 1998
Counsel:
Plaintiff : Mr M L Segler
First Defendant : Mr B E S Lauri
Second Defendant : Mr B E S Lauri
Third Defendant : Mr B E S Lauri
Solicitors:
Plaintiff : Shane Brennan
First Defendant : Pryles & Defteros
Second Defendant : Pryles & Defteros
Third Defendant : Pryles & Defteros
(Page 3)
CIV 1601 of 1999
Counsel:
Plaintiff : Mr M L Segler
Defendant : Mr B E S Lauri
Solicitors:
Plaintiff : Shane Brennan
Defendant : Pryles & Defteros
Case(s) referred to in judgment(s):
Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965
Flinn v Flinn [1999] 3 VR 712
In re Land and Property Trust Co plc (No 3) [1991] BCLC 856
In re Land and Property Trust Co plc [1991] 1 WLR 601
Knight v F P Special Assets Ltd (1992) 174 CLR 178
Symphony Group plc v Hodgson [1994] QB 179
Taylor v Pace Developments Ltd [1991] BCC 406
Vestris v Cashman (1998) 72 SASR 449
Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685
Yates v Boland [2000] FCA 1895
Case(s) also cited:
Bischof v Adams [1992] 2 VR 198
National Justice Compania Naviera SA v Prudential Assurance Co Ltd - the Ikarian Reefer [2000] 1 All ER 37
Nordstern Allgemeine Versicherungs AG v Internav Ltd [1999] 2 Lloyd's Rep 139
Smith v Madden (1946) 73 CLR 129
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1 STEYTLER J: The defendants were successful in their defence of two actions brought by the plaintiff. They now seek a number of orders relating to the costs of the two actions.
2 The first order which is sought by the defendants is relatively uncontroversial. It is that Duskwood Pty Ltd ("Duskwood"), which was the plaintiff in each of the two actions, should pay the defendants' costs of each action. The costs are to include reserved costs and the charges of professional agents, both solicitors and counsel, in Victoria. They are also to be taxed, with a certificate for two counsel.
3 Counsel for Duskwood made no submissions in this respect and it seems to me that the defendants are entitled to the orders which they seek. Because the defendants were based in Victoria, and some of the witnesses resided in that State, it was appropriate for much of the work to be done by Victorian solicitors and counsel. I should add that the Victorian Senior Counsel who was briefed in each action was admitted as a practitioner of this Court shortly before the commencement of the trials.
4 The two actions were heard together. The first of them (CIV 2310 of 1998) was very simple. However the second (CIV 1601 of 1999) raised complex issues of fact and law. That complexity seems to me to justify a certificate for second counsel and, because the two actions were heard together, it is appropriate that there should be a certificate in each case. I would not otherwise have been disposed to order that there should be a certificate for second counsel in action CIV 2310 of 1998.
5 Next, the defendants seek orders in action CIV 1601 of 1999 that the costs in respect of Items 13 (getting up case for trial), 14(a) (counsel's fee on brief for the first day of trial and preparation) and 14(b) (Queen's Counsel's fee on brief for the first day of trial and preparation) of the Supreme Court scale of costs should be taxed without regard to the limits imposed by the scale on those items. I have already mentioned that this action involved complex issues of law and fact. Taking this into account, and having regard for the affidavit evidence which outlines the substantial amount of time expended on preparations for the trial, it is appropriate that I should make orders in the terms sought. The defendants will, of course, have to satisfy the Taxing Officer that the costs in question were reasonably and necessarily incurred.
6 That brings me, next, to the more controversial aspect of the defendants' application. They seek an order that Mr Warren Anderson, a director of Duskwood, be jointly and severally liable with Duskwood to
(Page 5)
- pay their costs of each trial. Mr Anderson has recently (after judgment in the two actions) been joined as a party for this purpose. The defendants also seek an order that they not be entitled to take any step to recover their costs from Mr Anderson until the expiration of 14 days from the date upon which their costs are taxed or agreed. They suggest that this will give to Duskwood an opportunity itself to pay the costs before Mr Anderson is required to do so.
7 The basis upon which a costs order is sought against Mr Anderson is essentially fourfold. The defendants contend, firstly, that Duskwood has insufficient assets in order to enable it to comply with an order that it pay the costs of the actions. Next, they contend that Mr Anderson, being a shareholder in, and a director of, Duskwood, has an interest in the subject matter of the litigation. Thirdly, they contend that Mr Anderson has played an active part in the conduct of the litigation, having had the management of each action. Finally, they say that Mr Anderson has financed the two actions. They contend that these four factors, taken together, are sufficient to justify the order which they seek.
8 As to the first of these factors, the evidence discloses that Duskwood's assets are substantially exceeded by its liabilities and that there is, at the very least, a real question as to its ability to satisfy any order for costs. It is enough to say, in this respect, that the Full Court of this Court has recently ordered it to pay a sum of money into court as security for the costs of an appeal which it has lodged against the judgment in action CIV 1601 of 1999.
9 Next, there is no doubt that Mr Anderson has played an active part in the conduct of the litigation and, on the strength of the affidavit evidence, that he has managed it.
10 That Mr Anderson has an interest in the subject of the litigation is clear from his status as a shareholder of Duskwood. Duskwood has only two issued shares. One of these is held by Mr Anderson and the other by his wife.
11 Finally, the affidavit evidence establishes that Mr Anderson has, to some extent at least, financed the actions, in that the fees of counsel who was retained by Duskwood for the purposes of each trial were paid by him.
12 The court is undoubtedly empowered to make an order for costs against a person who was not a party to the proceedings. Section 37(1) of the Supreme Court Act 1935 provides, so far as is relevant, that, subject to
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- the provisions of that Act and to the Rules of Court, "the costs of and incidental to all proceedings in the Supreme Court … shall be in the discretion of the Court or Judge, and the Court or Judge shall have full power to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid". There is nothing in the Act, or in the Rules of Court, which would preclude an order of that kind being made. (Cf Knight v F P Special Assets Ltd (1992) 174 CLR 178 at 185, discussing the statutory scheme in Queensland, which is not dissimilar in effect, and see Seaman: Civil Procedure in Western Australia, par 66.1.3).
13 However, the power to make an order of this kind is one which will rarely be exercised. As has been said by Lord Goff of Chieveley in Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965, at 980, it would, in the vast majority of cases, be unjust to make an award of costs against a person who was not a party to the relevant proceedings. (See also In re Land and Property Trust Co plc [1991] 1 WLR 601 at 604; Symphony Group plc v Hodgson [1994] QB 179, at 192 - 3; Vestris v Cashman (1998) 72 SASR 449, at 467 and Flinn v Flinn [1999] 3 VR 712, at 760).
14 In Symphony Group plc v Hodgson, above, at 191 - 192, Balcombe LJ summarised a number of instances in which the court has been prepared to order a non-party to pay the costs of proceedings. These are as follows:
"(1) Where a person has some management of the action, eg, a director of an insolvent company who causes the company improperly to prosecute or defend proceedings: see In re Land and Property Trust Co Plc [1991] 1 WLR 601; In re Land and Property Trust Co Plc (No 3) [1991] BCLC 856; In re Land and Property Trust Co Plc (No 2) The Times, 16 February 1993; Court of Appeal (Civil Division) Transcript No 160 of 1993; Taylor v Pace Developments Ltd [1991] BCC 406; In re A Company (No 004055 of 1991) [1991] 1 WLR 1003 and Framework Exhibitions Ltd v Matchroom Boxing Ltd (unreported), 23 September 1992; Court of Appeal (Civil Division) Transcript No 873 of 1992. It is of interest to note that, while it was not suggested in any of these cases that it would never be a proper exercise of the jurisdiction to order the director to pay the costs, in none of them was it the ultimate result that the director was so ordered.
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- (2) Where a person has maintained or financed the action. This was undoubtedly considered to be a proper case for the exercise of the discretion by Macpherson of Cluny J, in Singh v Observer Ltd [1989] 2 All ER 751, where it was alleged that a non-party was maintaining the plaintiff's libel action. However, on appeal the evidence showed that the non-party had not been maintaining the action and the appeal was allowed without going into the legal issues raised by the judge's decision: see Singh v Observer Ltd [1989] 3 All ER 777n.
(3) In Gupta v Comer [1991] 1 QB 629 this court approached the power of the court to order a solicitor to pay costs under Ord 62, r 11 as an example of the exercise of the jurisdiction under section 51 of the Act of 1981.
(4) Where the person has caused the action. In Pritchard v J H Cobden Ltd [1988] Fam 22 the plaintiff had suffered brain damage through the defendant's negligence. That resulted in a personality change which precipitated a divorce. This court held that the defendant's agreement to pay the costs of the divorce proceedings could be justified as an application of the Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 principle: see [1988] Fam 22, 51.
(5) Where the person is a party to a closely related action which has been heard at the same time but not consolidated - as was the case in Aiden Shipping itself.
(6) Group litigation where one or two actions are selected as test actions: see Joseph Owen Davies v Eli Lilly & Co [1987] 1 WLR 1136."
15 Balcombe LJ went on to remark [at 192] that these categories were neither rigid nor closed, referring to what had been said by Lloyd LJ in Taylor v Pace Developments Ltd [1991] BCC 406, at 408, to the effect that "There is only one immutable rule in relation to costs, and that is that there are no immutable rules".
16 In Knight v F P Special Assets Ltd, above, at 192, Mason CJ and Deane J, while acknowledging that the prima facie general principle is that an order for costs is only made against a party to the litigation, accepted that there is "a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of
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- costs, support an order for costs against a non-party". Their Honours there thought it appropriate to recognise a general category of case in which an order for costs should be made against a non-party if the interests of justice should require that. That category is one which "consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation" (p 192 - 193).
17 In Vestris v Cashman, above, at 457, Olsson J (with whom Doyle CJ was in agreement) listed a series of broad propositions which are material. These were as follows:
"(1) The mere fact that a non-party may have benefited from the litigation, by itself, is not a proper basis for an adverse exercise of discretion: see Bischof v Adams [1992] 2 VR 198.
(2) Where proceedings are initiated and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in the result, it would rarely be just for such a person pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail or be discontinued: see Carborundum Abrasives Pty Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757.
(3) The existence of a special personal interest in or potential benefit from the litigation is a critical factor warranting an order against a non-party. The mere fact that the non-party may have funded the legal costs of the unsuccessful party will not normally be sufficient: see Re Foster; Ex parte Foster v Duus (1994) 121 ALR 494; Oz B & S v Elders (1993) 117 ALR 128.
(4) It is not necessary to prove fraud, bad faith or some improper motive on the part of the non-party, provided that the situation falls within categories (2) or (3): see Forest Pty Ltd v Keen Bay Pty Ltd (1991) 4 ACSR 107.
(5) A failure on the part of the successful litigant to make a timely application for security for costs is a relevant consideration, where it appears unlikely that a corporate
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- litigant will be unable [sic] to pay any costs awarded against it. The availability of an order for security for costs at an earlier stage of the litigation will, in any situation, be a strong argument for refusing to exercise a discretion to order costs against a non-party: see Knight v F P Special Assets Ltd per Mason CJ and Deane J."
18 As to this last proposition, there can, in my opinion, be no doubt that one of the more important considerations, in dealing with an application of this kind, is that of whether an application for security for costs has been made against the non-party or whether some other timely warning of an intention to claim costs against the non-party has been given.
19 In Symphony Group, above, at 193, Balcombe LJ said that a non-party should be warned at the earliest opportunity of the possibility that an application for costs might be made against him. He saw this as "an obvious application of the basic principles of natural justice". While he was there referring to a non-party against whom the applicant had a valid cause of action but who, for good reason, had not been joined as a party, his comments are apposite, also, to the case of a non-party against whom there is no cause of action.
20 In Knight, above, at 191, Mason CJ and Deane J said that 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. However, they pointed out (at 190) that there are limitations attaching to the availability of security for costs such that this remedy is not available in all cases in which justice calls for the award of costs against a non-party. So, they said, security cannot be ordered against a defendant or a plaintiff who is an individual and who resides in the jurisdiction. Their Honours also said that the amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient.
21 It will be apparent from the extract which I have quoted from the judgment of Olsson J in Vestris, above, at 457, that his Honour there expressed the opinion that the availability of an order for security for costs at an earlier stage of the litigation will, "in any situation", be a strong argument for refusing to exercise a discretion to order costs against a non-party. However, his Honour there referred to what had been said by
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- Mason CJ and Deane J in Knight and it may be that the reference to "any situation" was intended to be a reference to "many situations", those being the words which were used by Mason CJ and Deane J in that case at 191.
22 Olsson J went on to say, in Vestris, at 458:
"Albeit that he was in dissent in Knight v F P Special Assets Ltd, McHugh J pointed to the incongruity of a situation in which, on well-settled principle, an application for security made before trial might well be refused on the ground of delay but that a court, nevertheless, might be invited to make a non-party order for costs after verdict.
As he said, Devenish v Jewel Food Stores Pty Ltd (1990) 64 ALJR 533; 94 ALR 664 is a clear illustration of the well-settled attitude of the courts that applications for security must, ordinarily, be made promptly after the impecuniosity of the plaintiff becomes known; and before significant additional expense, by way of legal costs, is incurred. The rationale for that attitude is as expressed by Branson J in Yates Property Corporation Pty Ltd v Bolan [sic], in terms earlier recited in these reasons."
23 His Honour was there referring to what had been said by Branson J in Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685, at 695, to the effect that, if an application for security for costs was brought, "those who stand behind the company may then make a decision, ordinarily at an early stage, as to whether to make the financial commitment necessary to allow the litigation to proceed".
24 Olsson J also said (at 458):
"To express the concept in another fashion, common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security or, alternatively, at least by letter advising the defendant's intention, place the non-party on notice of that risk, so that the non-party will not, in effect, be lulled into a false sense of security and ambushed, when it is too late for it to reflect as contemplated in Yates Property Corporation Pty Ltd v Bolan [sic]."
25 In Vestris, Lander J (with whom Doyle CJ was also in agreement) said (at 468):
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- "In exercising the discretion regard would be had to whether the non-party could have been joined as a party earlier in the proceedings and thereby obtained the protection of the rules of court; whether the non-party has had any warning that an application for costs against that party would be made; whether, in those circumstances, the non-party could have applied to be joined in the proceedings and thereby had the capacity to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules; whether if a warning had been given the non-party could have terminated the proceedings by discontinuance, negotiation, payment or otherwise; whether the party who would otherwise be usually liable for costs can meet an order for costs and if relevant the reason why that party cannot meet an order for costs; whether it was apparent at any earlier stage in the proceedings, and if so when, that the party could not meet costs; whether the moving party should have sought an order for security for costs; the relationship, if any, between the non-party and the party who would usually be liable for costs; whether the non-party has caused the proceedings; whether the non-party has funded the proceedings; whether the non-party stood to benefit by the litigation and if so how; whether the non-party had a direct or indirect financial interest in the litigation; and whether there has been any improper conduct on the part of the non-party.
None of the matters will necessarily be decisive."
26 Finally, in Yates v Boland [2000] FCA 1895, the Full Court of the Federal Court (O'Loughlin, North and Weinberg JJ) said, at par 34, that "the necessity to warn a non-party of an intention to claim costs is not a principle applicable in every case in which costs are sought against a non-party. Rather it may be a material consideration depending on the situation disclosed in the case under consideration".
27 Here, the failure to give any warning of this application at any time prior to judgment, or to apply for security for costs, is undoubtedly a weighty consideration. Indeed, it seems to me to outweigh all others in the circumstances of this case.
28 While it is true that Mr Anderson actively managed the actions on behalf of Duskwood, this was a case in which there was nothing exceptional about his management of them. As I have earlier mentioned,
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- he was, and still is, a director of Duskwood (there are two other directors). He is, effectively, its managing director. The actions were important to the company and it is hardly surprising that he took on the responsibility of managing them. There is no suggestion that he behaved irresponsibly or improperly in arranging for the commencement of the actions or in managing them. The situation in this case is far removed from that discussed, for example, in In re Land and Property Trust Co plc (No 3) [1991] BCLC 856, in which the directors were said by Harman J to have passed resolutions for the presentation of administration petitions in a "grossly irresponsible manner". Nor is there any suggestion that Duskwood's actions were not bona fide, as to which see Taylor v Pace Developments Ltd, above, at 409 per Lloyd LJ, with whom Nourse LJ and Ralph Gibson LJ were in agreement.
29 As to Mr Anderson's financing of the actions, I have said that the evidence discloses that he paid the fees charged by Duskwood's counsel. However, it is not clear upon what basis he did so, whether by way of loan to the company or otherwise.
30 I am consequently disinclined to give either of these factors, and particularly the first of them, much weight. That leaves the fact of Duskwood's questionable financial circumstances and that of Mr Anderson's interest in the subject of the litigation. It seems to me that these two facts, even taken together with Mr Anderson's management of the actions and his financing of counsel's fees, are not enough to justify the making of such an exceptional order as that sought in circumstances in which security for costs has never been applied for and no prior warning has ever been given of any intention to bring an application of this kind.
31 I asked counsel for the defendants why it was that no application for security for costs had been made. He said (there was no affidavit evidence to this effect) that his instructing solicitors "only became aware at too late a stage" of Duskwood's financial position. By then, he said, it was considered that the stage had already been reached at which the court was unlikely to order security for costs. That could only have been so because the delay had been so great as to occasion prejudice of the kind mentioned by Branson J in Yates, above. It would, as McHugh J pointed out in his dissenting judgment in Knight, above, at 218, be an odd result if, in the exercise of the court's discretion, an application made before trial to provide security for costs was refused on the ground of delay but the court could make an order for costs against a non-party after verdict. Equally, it seems to me, there is some inconsistency in an approach which says that it is too late to bring an application for security for costs, but that
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- an application that the costs be borne by a non-party can be brought, without prior warning, even later.
32 Had security for costs been applied for at an appropriate time it might well have been ordered, as it has been in respect of the appeal. The available evidence does not suggest that the information now available to the defendants in respect of the financial standing of Duskwood could not earlier have been obtained by them. One of the principal reasons for contending that Duskwood is unlikely to be able to meet a costs order against it is that land owned by it is encumbered in respect of amounts far exceeding the value of that land. The mortgage pursuant to which that land is so encumbered has been registered since 31 December 1993. There is nothing to suggest that the indebtedness which is secured by that mortgage has increased since that date.
33 In all of these circumstances an order that Mr Anderson should pay the defendants' costs of the two actions would not, in my opinion, be in the interests of justice. I am consequently not prepared to make it.
34 It follows that I am, in action CIV 1601 of 1999, prepared to make orders in terms of pars 1(a) and (b) of the re-amended notice of motion for orders in respect of the costs of the action, but that I am not prepared to make the orders sought in pars 2 and 3 thereof. In action CIV 2310 of 1998 I am prepared to make an order in terms of par 1 of the notice of motion, but I am not prepared to make orders in terms of pars 2 and 3 thereof.
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