Emapta Group v Woodville Diagnostics and Imaging (No 2) - [2017] SADC 10

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
EMAPTA GROUP v WOODVILLE DIAGNOSTICS AND IMAGING (No 2)
[2017] SADC 10
Judgment of His Honour Judge Slattery
3 February 2017
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
Application by the successful plaintiff for orders that one Kew, the sole director and shareholder of the defendant, be joined as a party to the action and for an order that Kew pay the costs of the plaintiff on an indemnity basis or alternatively on a solicitor/client basis or alternatively on a party/party basis.
Alternatively, application that the defendant pay the plaintiff’s costs of the action on indemnity basis, which application was not opposed.
Despite denials in its pleadings, the court found that the defendant entered into a fresh lease with the plaintiff as lessor of commercial premises disposed as a specialist medical imaging centre. The defendant breached the fresh lease by abandoning the premises, failing to pay rent and outgoings and failing to restore the premises upon their abandonment.
All of the negotiations for procuring the subject least were conducted by one Davies, an authorised agent of the defendant with the assistance of one Neill, the general manager of the defendant.
Kew did not participate in the negotiations for the procuration of the fresh lease and she deferred to Davies and Neill.
At trial, Kew represented the defendant by leave of the court and she maintained that the defendant had the defence to the plaintiff’s claim. This was despite Kew not being involved in the negotiations leading to the formation of the fresh lease. Davies was on occasion present in the courtroom, was available to give evidence but did not enter the witness box. The defendant did not lead any evidence at the trial.
Held:
1. In the exercise of its discretion under s 42(1) District Court Act, the court has the power to make an order for costs against a non-party who is associated with or related to a defendant.
2. In the exercise of the court’s discretion in the instant case, no order for joinder of Kew or that any order for costs of the plaintiff on any basis would be made against her on the particular facts of this matter.
3. Application for orders for joinder of Kew and that she pay costs is dismissed.
4. Order that the defendant pay the plaintiff’s costs on an indemnity basis.
Retail and Commercial Leases Act s 33; District Court Act s 42(1); District Court Civil 6DCCR r 264; Professor G. E. Dal Pont in Law of Costs 2nd ed, LexisNexus Butterworths 2009; Civil Procedure South Australia LexisNexus vol 1, paragraph r264.85, referred to.
Jones v Dunkel (1959) 101 CLR 298, applied.
Vestris & Anor v Cashman (1998) 72 SASR 449; Australasian Academy of Natural Medicine Pty Ltd v Walters (2003) 85 SASR 36; Morbidelli v Resource Co Pty Ltd [2010] SASC 107; Colgate-Palmolive Co Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248; Duke Group Limited v Pilmer (No 8) [1998] SASC 6699; J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Knight v F P Special Assets Ltd (1992) 174 CLR 178, discussed.
Bischof v Adams [1992] 2 VR 198; Carborundum Abrasives Pry Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757; Re Foster; Ex parte Foster v Duus (1994) 121 ALR 494; Forest Pry Ltd v Keen Bay Pry Ltd (1991) 4 ACSR 107; Symphony Group plc v Hodgson [1994] QB 179; Re Wridgemont Display Homes Pty Ltd (1992) 39 RCR 193; Oz B & S Pty Ltd v Elders IXL Ltd (1993) 117 ALR 128; Re Talk Finance & Insurance Services Pty Ltd [1994] 1 Qd R 558; Yates Property Corporation Pty Ltd v Bolan (1997) 147 ALR 685; Najjar v Haines (1991) 25 NSWLR 224; Burns Philp & Co Ltd v Bhagat [1993] IVR 203; Davies v Eli Lilly & Co [1987] 1 WLR 1136; [1987] 3 All ER 94; Singh v Observer Ltd [1989] 2 All ER 751; Pritchard v J H Cobden Ltd (1988) Fam 22; Re Foster Ex parte Foster v Duus (1994) 121 ALR 494; Re Emanuel (No 14) Pty Ltd (in liq) (1997) 147 ALR 281; Preston v Preston (1982) 1 All ER; Thors v Weekes (1989) 92 ALR 131; Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721; Crisp v Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal, considered.

EMAPTA GROUP v WOODVILLE DIAGNOSTICS AND IMAGING (No 2)
[2017] SADC 10

Application by the plaintiff for an order for costs against the defendant on a full indemnity basis, and for an order for costs against a non-party, Jacqueline Kew (Kew) on an indemnity basis or alternatively a solicitor/client basis or alternatively a party/party basis. Kew is the sole director of the defendant company; by leave of the court, Kew appeared at the trial of this action and she represented the interests of the defendant company.
The plaintiff claims that it was put to costs and expense of conducting a full trial against the defendant which was insolvent but which did not concede the claim of the plaintiff. The defendant actively resisted the plaintiff’s claim and this resistance was orchestrated by Kew, its only director. Kew did not lead any evidence from witnesses at the trial which evidence may have informed the filed defence of the defendant. On the face of those pleadings, evidence may have been led from those persons who were involved in the negotiations with the plaintiff about a lease of specialist medical premises for use in a medical imaging business by the defendant company. One of those persons was Dr Roger Davies (Davies).
I will leave aside the question of any order for indemnity costs against the defendant until later in these reasons. Although I am satisfied that it is appropriate to make such a costs order against the defendant company I will deal first with the application for a non-party costs order against Kew.
It is first necessary to survey the issues that arose in the principal proceedings because they largely determine this application. The plaintiff was the lessor of property at Port Road, Woodville. The defendant was the lessee of the property. The plaintiff and the defendant entered into a lease which commenced on 16 October 2008 the terms of which contained a right of renewal. An offer was made by the defendant to enter into a fresh lease under the renewal terms and that offer was accepted by the plaintiff. By the time of its acceptance, the plaintiff had separately settled with the defendant the amount of rent payable under the renewed lease. The plaintiff then prepared and delivered a fresh form of lease and that form of lease complied with the requirements of the renewal conditions of the 2008 lease. I was satisfied that the defendant was contractually bound to execute the fresh lease under the renewal terms.
In breach of its obligations, the defendant refused to execute the new lease agreement, remained in possession of the premises and then paid some rent at a rate negotiated as the rate payable under the renewed lease. The defendant wrongly treated itself as being in a holding over arrangement. The defendant then purported to terminate the lease arrangements on a number of bases none of which were valid. In 2014 the defendant abandoned the premises and failed to make the premises good. The plaintiff then incurred substantial costs in making good the premises. In my judgment I found that there was an offer to enter into a fresh lease, it had been accepted and an appropriate form of lease contract had been prepared which incorporated any separate collateral agreements that I found had been settled between the parties. I found that the parties had agreed to a rental rate of $250 per m² per annum.
As a result of the settlement of the terms of agreement between the parties, at the least, an equitable lease arose between them. I have found that there was no repudiatory conduct by the plaintiff; the tender by the plaintiff to the defendant of a lease in the form agreed between the parties did not and could not amount to repudiatory conduct; and, in the absence of the execution of the further lease by the defendant, the defendant remained liable under an equitable lease under a new demise for a five year period.
I then made an assessment of the losses sustained by the plaintiff as a result of the defendant’s breach and awarded judgment for the plaintiff in the amount of $661,037.33 plus interest of $39,663.00.
On the application for an order for costs against Kew, the plaintiff emphasised that Davies was the person who negotiated the contract of lease and its renewal on behalf of the defendant. At no time was Davies an officer of the defendant but Kew openly admitted in court from the bar table that he was authorised by her as the sole director of the defendant to negotiate the terms of the renewed lease. In my judgment, I made findings that Davies was intimately involved in all of the negotiations for the renewed lease. He performed this task as authorised agent of the defendant company. The statements, representations and agreements made by him bound the defendant. As a result it was always necessary for the defendant to call Davies in evidence in order for there to be any prospect of the defendant sustaining legally and factually any defence that it pleaded. Davies attended court on the first day of hearing but was not called to give evidence.
I was satisfied Davies was available to be called to give evidence; Kew conceded from the bar table that she and Davies were now involved in a new medical imaging business and that Davies was at all relevant times working in that business. A conscious decision was made by Kew not to call him as a witness and no witnesses were called by the defendant. Thus he was available to give evidence but he was not called to give evidence despite being available.
I also made findings that after settling upon an agreement on the terms of the new lease, Davies, on behalf of the defendant, then attempted to avoid the obligations under the renewed lease. I found that as agent of the defendant Davies took negotiating positions which were both calculated and could only best be described as grasping at arguments of convenience in an attempt to avoid that agreement. This conduct reflected poorly on Davies and upon Kew; the positions taken were unsustainable.
At [12] of my judgment,[1] I record that the decision by Kew to lead no evidence was made after a full and thorough explanation about the conduct of trial, the rules of evidence and in particular the rule in Jones v Dunkel[2] and of the risks of not calling evidence. I was satisfied that the decision made by Kew not to call evidence was a conscious decision made on her part despite her admitting to me that both Davies and a Mr Neill, the general manager of the defendant business, were available to be called to give evidence. This decision was made by Kew in the background of those circumstances and after she had failed in her submission of no case to answer. That submission (and argument) was obviously made in the background context where Kew was obtaining some form of legal advice. This application was hopelessly flawed and was misconceived.
[1] [2016] SADC 96.
[2] (1959) 101 CLR 298.
Before further commenting upon the position taken by the defendant at trial it is necessary to recall that the plaintiff was always required to go into evidence on a number of issues even if the defendant had consented to judgment. Much of the plaintiff’s claim required an assessment of damages. One example is the make good claim under the lease. It was always necessary for the plaintiff to lead evidence on this topic in proof of its claim.
A slightly different position obtains under the rental claim, (a money claim) but it was still necessary for the plaintiff to prove the agreement for the lease rate of $250 per m². Similarly on outgoings, it was necessary for the plaintiff to prove the collateral agreement on the provision of telephone services and on the issue of billings and accounting, as well as the comparative advantage to the defendant of that collateral agreement.
Even if the defendant had consented to judgment, it would always have been necessary for the plaintiff to have led evidence in support of its damages claims and nothing done by Kew in any way influenced that requirement. In the prosecution of its claim, the plaintiff had to deal with liability and quantum issues.
In my judgment I had regard largely to the objective documentary trail available from the disclosure given by both parties. That documentary trail was mostly business records produced by both parties and I found that ultimately, the business records all supported the plaintiff’s case. Conversely, and based upon the findings of fact that I made, I found at [63] that the position taken by Davies where he attempted to generate disputes with the plaintiff about particular aspects of the renewed lease were calculating in nature. Davies was obviously attempting to avoid the bargain that he had made on behalf of the defendant. In particular, at [58] and [59] of my judgment, I found that the attempt by Davies and Neill to suggest that there had been a swag of new terms introduced by the plaintiff (outside of any settled agreement) was unsustainable at any level.
Davies was not prepared to go into the witness box to give evidence and to challenge the version of events given by the plaintiff’s principal witness Mr Vorbach. This was important at a number of levels; the first in relation to the renewed lease; the second in relation to any other collateral agreements made between the plaintiff and the defendant; and the third in relation to ancillary matters. These included such matters as costs of telephone systems and whether s 33 of the Retail and Commercial Leases Act had any application. I found that the defendant through Davies and Neill had entered into a separate collateral contract with the plaintiff and one of its related companies for the supply of phone services and the obligations under that contract had been discharged in full by the plaintiff. The plaintiff had discharged all of its obligations to the defendant and the defendant then had the benefit of a telecommunications system at a price much cheaper than could otherwise had been achieved in the marketplace.
I found that many of these issues raised by Davies (and Neill) were merely attempts to create negotiating points when they were properly understood. They were faux negotiating points and reflected poorly upon Davies and Neill, the credibility of both of whom were under challenge and they were not willing to give evidence on those issues. An inference arises that both of them did not have the conviction of the negotiating points they were raising.
The trial of this action took place over three days. The first day was lost due to the fact that Kew asked for time to gather the papers and be in a position to properly defend the matter. This request occurred in the background where until a couple of weeks prior to the trial date the defendant had been represented by solicitors who presumably were engaged in the usual process of preparation for trial until the termination of their instructions. The defendant had prepared and filed its defence using the services of those solicitors.
I consider that this is significant for a number of reasons. Even if the defendant was completely correct in its defence, it still had the burden of its obligation to make good the premises at the end of the lease. The defendant abandoned the premises and left them in a state of the most extraordinary disrepair; I have dealt with that issue in my judgment; the epithet “extraordinary” is wholly justified. Any obligation to make good after the cessation of the medical imaging business involves removal of lead lining in walls, copper lining under floor coverings and many other specific fixture issues associated with such a business. The defendant did nothing and walked away from a building that required a very significant amount of repair.
The hearing was then adjourned to 12 July 2016 and was completed on 13 July 2016. At that time I reserved by judgment which was delivered, ex tempore, on 15 July 2016.[3]
[3] [2016] SADC 96.
By notice for specific direction dated 1 November 2016 at paragraphs 4, 5 and 6, the plaintiff seeks the following orders.
4. That Jacqueline Kew of <address> be joined as a party to the within proceedings.
5. That an order be made in the within proceedings that costs of the trial be awarded in favour of the plaintiff against Jacqueline Kew on an indemnity basis or in the alternative on a solicitor-client basis; or in the alternative on a party and party basis.
6. That the plaintiff have its costs of and incidental to this application.
The plaintiff read in support of its application the affidavit of Justin Simon Stewart-Rattray sworn 1 November 2016. He informed the court that shortly before the trial of this matter and on or about 27 June 2016, the defendant informed the plaintiff that its solicitors had ceased to act. The reason given was that the defendant did not have sufficient funds to pay its solicitors and that the defendant would represent itself through its directors at the hearing of the matter. On 27 June 2016 Davies appeared for the defendant in court at a directions hearing before a master of the court; Kew also appeared for the defendant. Davies indicated to the court that he would seek permission to act for the defendant at trial. He was not an officer or shareholder of the defendant. The trial was scheduled to start on 11 July; the trial commenced some two weeks after the defendant solicitors ceased to act because of the impecuniosity of the defendant.
On 11 July 2016 Davies was present in the court but did not appear at the bar table. Kew appeared by leave for the company and she sought an adjournment of the trial to allow her to seek assistance in the conduct of the trial. She informed the court that the defendant had no funds; she had no firsthand knowledge of the matters that had arisen between the defendant and the plaintiff; Davies had all the dealings with the plaintiff and that she was not in a position to lead evidence before the court on the subject matter of the proceedings. Kew said that Davies was the only person who could give any evidence in the trial for the defendant. She appears to have overlooked the conduct of Neill.
On 11 July 2016 Mr Stewart-Rattray solicitor wrote to Kew and Davies.[4] In that letter the following assertions were made: that Davies was in effect a de-facto director of the defendant; that Davies made the decisions for and on behalf of the defendant; that Kew had a special interest in the defendant succeeding on the defence of the proceedings and possibly stood to benefit directly or indirectly from that success; part of that interest included that there would be no further enquiry into the management of the defendant; as a result it is unfair that Kew and Davies should be able to continue to maintain the defence which was always going to be unsuccessful; and there is no meritorious defence to the proceedings. That was particularly so because Kew admitted openly in court that she could not give evidence on the crucial issues before the court.
[4] Exhibit JSSR1 to the affidavit of Justin Simon Stewart-Rattray sworn 31 October 2016 (FDN27).
On the first day of trial Davies was present in the courtroom from about 10.30am until about 11.30am. On 12 or 13 July 2016, Kew informed the court that Davies would not be giving evidence and that she was not going to subpoena him to give evidence. She said that the defendant would not lead any evidence at trial. It is not clear to me when Kew made the decision not to call any evidence.

The plaintiff contends that notwithstanding that at some stage on 11 or 12 July 2016 Kew made a decision not to call evidence, she persisted in putting a defence position in the court and requiring the defendant to go on incurring costs. It is not in contest that although Kew identified that the defendant had no funds, she refused to either negotiate a settlement or to consent to any judgments on behalf of the defendant. As well, Kew brought an application at the close of the plaintiff’s case for no case to answer which was rejected by me. It was apparent to me from the correspondence put before the court that Kew (and Davies) were receiving legal advice at that time.
On 11 July 2016 the plaintiff’s solicitors put Kew on notice that the plaintiff intended to make an application under s 42(1) District Court Act (DCA)[5] and under 6DCCR r 264[6] for an order that Kew (and Davies) be liable for costs. Kew responded by letter of 12 July 2016. I am satisfied that this letter was drawn by solicitors. In the letter she asserted that the defendant was not presently insolvent, that the defendant had a valid defence but could not afford to retain legal representation; that the action would be defended to the best of Kew’s ability; the cross action would be pursued because it is an asset of the defendant; that if the defendant is unsuccessful in its defence it would not be able to meet a judgment debt and would be insolvent. Kew also asserted in that letter that the plaintiff has been on notice for some months of the risk that the defendant could not meet a judgment debt. This appears to be a reference to a letter of 7 October 2015 sent after a settlement conference where a small offer was made and the defendant’s solicitors stated that the defendant was impecunious.
[5] 42—Costs
[6] 264—Basis for awarding costs
(1)The Court may, in the exercise of its discretion as to costs, award costs on any basis the Court considers appropriate.
(2) As a general rule, however, costs are awarded as between party and party (that is, on the basis that the party entitled to the costs will be reimbursed for costs reasonably incurred by the party in the conduct of the litigation to an extent determined by reference to the scale of costs in force, under these Rules or the old rules, when the costs were incurred).
(3) The scale of costs for work done in the period commencing on 4 September 2006 is fixed by schedules to the Supplementary Rules.
(4)The Court may depart from the scale if there is good reason to do so.
Example—
The Court might allow a fee greater than allowed by the scale for a pleading if satisfied that the fee is justified by the difficulty of the case.
(5)In exercising its general discretion as to costs, the Court may—
(a) award costs as between solicitor and client (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation to the extent that the party entitled to the costs shows them to have been reasonably incurred); or
(b) award costs on the basis of an indemnity (that is, on the basis that the party will be fully reimbursed for costs incurred by the party in the conduct of the litigation except to the extent that the party liable for the costs shows them to have been unreasonably incurred); or
(c)award costs by way of lump sum; or
(d)award costs on any other basis the Court considers appropriate.
(6)The Court may award different components of costs on different bases.
(7)The Court may include in an award of costs an amount representing interest.
(8) A party who is entitled to costs, or against whom costs have been awarded, may apply to the Court to have costs, or a particular component of costs, awarded on a particular basis.
I have said that I am satisfied that the letter from Kew to the plaintiff’s solicitors of 12 July 2016 was drawn by solicitors who were advising the defendant. There are some curious features of the letter. In the letter, Kew expresses her determination to go on defending the action notwithstanding that the defendant is utterly impecunious and could not meet any judgment debt if it was unsuccessful in its defence. Inferentially at least, Kew knew that a substantial claim was made against the defendant which it could not meet but that statement is not reflective of the complete story. The plaintiff’s claim revolved around a request to the court to make a finding that the lease had been renewed by virtue of the agreement made between Vorbach on behalf of the plaintiff and Davies and Neill on behalf of the defendant. Thus, Kew could only have been determined to defend the action and then to prosecute the cross claim if she had available to her the evidence of Davies (and presumably Neill).
Also, the defendant had, through its solicitor’s letter of 7 October 2015 said that the defendant would not be in a position to meet any judgment if the plaintiff was successful and a liquidation of the defendant would not yield any return. The letter also confirmed that the defendant was not trading and had no assets and to proceed with the action would be a costly and unproductive frolic.
I consider that the letter from Minicozzi Lawyers to the plaintiff’s solicitors of 7 October 2015 to an extent, compounds the issues upon which the plaintiff makes its submissions. If it was known in October 2015 that the defendant was not trading, had no assets, could not meet any judgment amount and a liquidation would yield no return and thus an action would be a costly and unproductive frolic, it is difficult to understand why Kew would, as an officer of the company, purport to represent its interest in presenting a defence to the action to the court. I have deliberately used the expression “difficult to understand” because it is not the role of the court to second guess, as it were, the intentions of parties to a proceeding. The court is not naïve to the fact that there are many reasons, stated and unstated, why a defendant would continue to defend an action when such conduct was a complete waste of time. Thus it may similarly be said that if the plaintiff proceeded that there would be an unproductive frolic, so also could it be said that for the defendant to continue to proffer a defence to the action would also be an unproductive frolic. This must have been known by the defendant and in particular Kew as the only officer and shareholder of the defendant from no later than 7 October 2015.
It is something of a mystery why Kew therefore purported to present the defence of the defendant at the trial and, even more, to attempt to assert that the defendant had no case to answer at the close of the plaintiff’s case. Such an application was no doubt brought on advice but as I have said, the defendant was ill advised. The most important consideration here is that Kew could not lead any evidence herself because she had no or limited involvement in the key issues in the case but she still decided to put the plaintiff to proof on the whole of its case and lead no evidence for the defendant. I agree with the submissions of the plaintiff that this must have been an informed choice on the part of Kew.
The public records disclose that the defendant is a company with $10 in share capital and no other assets. It is likely insolvent. It was served with a statutory demand for the payment of the judgment on 21 October 2016 and has not complied with that demand.[7]
[7] See JSSR3, 4, 5, 6 and 7 to the affidavit of Justin Simon Stewart-Rattray sworn 31 October 2016 (FDN27).
It is in that background that I then turn to the question of orders for costs to be made against a non-party. There are two principal decisions of the Full Court of the Supreme Court of South Australia which guide my considerations. They are Vestris & Anor v Cashman[8] and Australasian Academy of Natural Medicine Pty Ltd v Walters.[9]
[8] (1998) 72 SASR 449.
[9] (2003) 85 SASR 36.
In Vestris the plaintiff trustee company was insolvent and sued the defendants for alleged misrepresentation on the sale of a business. The defendants to this application for costs as directors of the plaintiff claimant would have benefited directly (as beneficiaries of a trust) from the successful claim by the company. Following disclosure, the defendant in the action became aware of the insolvent position of the company but did not make any application for security for costs or give any notice to the directors that they would be held accountable for costs. After the failure of the company’s claim, Vestris sought costs against the directors personally in the District Court. At that time, under s 42 DCA, the District Court was not in a position to make an order for costs against a non-party. In any event, the trial judge declined to make an order in the exercise of the discretion. This was because Vestris had been on notice of the impecuniosity of the company from a very early stage in the proceedings, it could have given notice of the intention to make an application for costs and it could have made an application for security for costs. It failed to do all of these things. It was on that basis that the learned trial judge refused to exercise the discretion assuming that the court had power to make such an order (which it did not).
In Vestris, there were two principal decisions written by Olsson J and Lander J. At page 457, Olssen J summarised the relevant propositions as follows:-
As the learned trial judge recognised, the published authorities bearing on the question of exercise of discretion against non-parties to litigation establish a series of broad propositions. Those relevant to the instant case may be summarised thus:
(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 Pry 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) I I7 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 Pry Ltd v Keen Bay Pry 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 litigant will be unable 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 (1992) 174 CLR 178 per Mason CJ and Deane J.
Lander J at page 467 et seq said as follows:-
The circumstances in which it is just to order costs against a person who was not a party to the litigation will be both rare and exceptional: see Aiden Shipping Ltd v Interbulk Ltd (at 980.... If the order for costs which is sought against a non-party is in lieu of, in substitution for or complementary to an order for costs against a party, the circumstances for making such an order will not arise unless there is some connection or association between the party to the litigation and the non-party against whom the order for costs is sought. The connection must be of a kind that makes it just to make an order for costs in that the connection must be material to the question of costs: see Bischof v Adams [1992] 2 VR 198 at 205.
Whilst the circumstances to make an order for costs against a non-party will be both rare and exceptional such an order can be made without the moving party having to demonstrate any improper conduct of any kind on the part of the non-party. An order for costs against a non-party is not dependant upon any improper conduct on the part of any party. Of course in some cases improper conduct on the part of the non-party will be a relevant factor in the exercise of the discretion.
Whether it is just to make such an order involves the exercise of a discretion on the part of the trial judge: see Symphony Group plc v Hodgson [1994] QB 179 at 193. The discretion to make an order for costs against non-parties "must be exercised judicially and in accordance with general legal principles pertaining to the law of costs": see Knight v FP Special Assets Ltd (at 192) per Mason CJ and Deane J.
It is not desirable to lay down any rules which would fetter the exercise of a trial judge to make such an order but some guidance as to the exercise of the discretion can be obtained from the decided cases.
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. Indeed the presence of one or more of those matters does not inexorably lead to the conclusion that an order for costs should be made against a non-party. In Bischof v Adams the mere fact that a person may benefit from the litigation was not enough.
An order will be made against a non-party only if the justice of the case requires that an order be made.
In Knight v F P Special Assets Ltd (at 694) Mason CJ and Deane J identified a category of case where some of these factors would lead to an order for costs if the justice of the case required the making of an order.
They said (at 192-193):
"For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case 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. Where the circumstances of a case fall within that category, an order for costs should be mad.e against the non-party if the interests of justice require that it be made."
In matters invoking corporations the courts have made orders against shareholders/directors (Re Wridgemont Display Homes Pty Ltd (1992) 39 RCR 193; Oz B & S Pty Ltd v Elders IXL Ltd (1993) 117 ALR 128); directors (Re Talk Finance & Insurance Services Pty Ltd [1994] 1 Qd R 558; Oz B & S Pty Ltd v Elders IXL Ltd; Yates Property Corporation Pty Ltd v Bolan (1997) 147 ALR 685); receivers (Knight v F P Special Assets Pty Ltd); and liquidators (Bent v Gough (1992) 36 FCR 204. In those cases the non-parties were in fact managing the litigation.
There are other circumstances in which orders have been made; against an arbitrator (Najjar v Haines (1991) 25 NSWLR 224); in a representative action (Burns Philp & Co Ltd v Bhagat [1993] IVR 203); group litigation where one action is selected as a test case (Davies v Eli Lilly & Co [1987] 1 WLR 1136; [1987] 3 All ER 94); where a non-party has maintained the litigation (Singh v Observer Ltd [1989] 2 All ER 751); where a non-party has caused the action (Pritchard v J H Cobden Ltd (1988) Fam 22); and the wife of a bankrupt (Re Foster Ex parte Foster v Duus (1994) 121 ALR 494). Other instances were identified by Mason CJ and Deane J in Knight v FP Special Assets Ltd (at 187).
The order will be made when, in the circumstances of the particular case, it is just and equitable that a non-party pay the costs of a party to the litigation.
On the question of the exercise of the discretion the plaintiff argued that whatever Kew now says may have been her belief about the strength of the case of the defendant, that belief is irrelevant in light of the judgment in the action. The plaintiff correctly submits that it is not incumbent upon it to prove any aspect of bad faith or mala fides on the part of the defendant. The plaintiff also submits that an objective assessment could be made that the prospects of success of defending the action were low. By failing to call Davies, there was no prospect of ever defending the action because he was the person who was actively involved in the negotiations. Kew was unable to address any aspect of the defence of the defendant. There was a sufficiently certain documentary trail which lead inexorably to a finding in favour of the plaintiff. And the plaintiff submits that a view may be formed that the defence and set off claim were not genuinely brought in the absence of Davies being called to give evidence.
That same submission applied in relation to the question of outgoings. There was a documentary trail which contradicted the defendant’s position. The defendant’s case relied upon alleged misrepresentations and it was necessary to lead oral evidence to make good those misrepresentation. The judgment of the court was that the arguments on those alleged misrepresentations and outgoings agreement was weak and were raised merely as points of negotiations. The plaintiff would not otherwise have gone into evidence on that topic, although the plaintiff accepted that on questions of quantum, it would always have been necessary to have gone into evidence.
The plaintiff submits that the way in which the defendant behaved was informative of the position. The defendant should not have required the plaintiff to have gone into evidence on every topic. The defendant could have filed a consent to judgment.
The plaintiff also submitted that it was always known that the defendant was an impecunious company. It was never in a position to meet its debts as and when they fell due because any assertion of insolvency (by Kew) did not take into account the liability to pay rent, outgoings and the costs to make good the premises. All of those liabilities had already accrued. The assertion of a capacity to pay debts as and when they fell due was therefore false. An inference arises that this assertion was made following the receipt of legal advice that was demonstrably misconceived.

The same submission applied to the question of making good after termination. That obligation was not discharged and it could not have been discharged from as early as 2015 when it was conceded by Kew that the defendant company had no assets and could not trade. Thus, the assertion of being in a position to meet debts as and when they fell due was illusory and no more the gossamer.
The plaintiff then relied upon the decision of the Full Court of the Supreme Court of South Australia in Australasian Academy of Natural Medicine Pty Ltd v Walters.[10] In that case, the relevant discussion commences at [19]. There, Duggan J, who wrote the decision of the court recounted that the trial judge took into account the submission of Dr Kumar, (one of the directors against whom costs orders were sought) that he would stop acting and sought legal advice if he was earlier put on notice that a personal costs order was a possibility. Duggan J did not accept that submission. He referred to the finding of the trial judge that Dr Kumar and Professor Junius would have defended the claim in any event (at [19]). Duggan J then surveyed s 42(1) DCA, the decisions of the High Court in Knight v FP Special Assets Limited,[11] of the Federal Court in Yates v Boland[12] as well as the decision of Lander J in Vestris and of Balcombe LJ in Symphony Group plc v Hodgson.[13]
[10] (2003) 85 SASR 36.
[11] (1992) 174 CLR 178.
[12] [2000] FCA 1895.
[13] [1994] QB 179 at 191.
The Full Court confirmed the decision of the trial judge that was based upon the peculiar facts of that matter which included that although Dr Kumar had received legal advice, such advice was based upon false information which he knew had been provided by Professor Junius and which had been influenced by Dr Kumar. That is, Kumar and Junius were the parties who were providing false information to advisers and who had thereby engineered the actions. They were thus intrinsically involved in the commencement and maintenance of the action upon a basis that was false to their knowledge. The action could never succeed because of the falsity of their instructions given to solicitors.
At [63] and following, Duggan J considered the question of an alleged failure to give an early warning. His Honour held that may be relevant to the exercise of the discretion to grant the application and relied upon the judgment of Balcombe LJ in Symphony Group. At [68] – [69], Duggan J held as follows:-
[68] The Symphony Group case is distinguishable from the present case where it would seem that the respondent had no cause of action against Dr Kumar which would justify joining him as a party. Furthermore, there would seem to be no reason why Dr Kumar would have applied to be joined as a party; he had control over the defence of the respondent’s claim and he authorised the making of an offer to the respondent in order to settle the case. He had control over what evidence would be called by the defence.
[69] As the Full Court of the Federal Court pointed out in Yates v Boland [2000] FCA 1895 para 34 when speaking of the giving of warnings to non-parties of an intended application for costs:
“The discussion concerning Symphony and Vestris in pars 18 to 32 of these reasons shows that the question of warning has been treated as a material consideration in certain circumstances. Whether such a requirement arises in a particular case depends on the facts and circumstances of the individual case. 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.”
Duggan J went on at [70] to find the lateness of the notice of insufficient significance when it was known that Dr Kumar was truly the party in issue and he exercised almost the same level of control which would have been available to him had he been a party personally. That is reflected in his submission that if he had received earlier notice he would have stopped defending the proceedings. Therefore the case turns on its own peculiar facts although the recitation of principle is helpful.
It appears that in this case, Kew is in much the same position. She controlled the defendant whose solicitors sent letters informing the plaintiff of the defendant’s state of penury. That being so, there was similarly no reason or basis for the defendant to attempt to press any defence or cross action because there was nothing for the defendant to gain or to protect. Different from Australasian Academy of Natural Medicine Pty Ltd,[14] this does not mean that Kew was the true party (cf Knight v FP Special Assets[15]).
[14] (2003) 85 SASR 36.
[15] (1992) 174 CLR 178.
The plaintiff then submitted that because Kew was a director and shareholder, there is some benefit to her from the proceedings. This is because the action concerned a lease of commercial premises by the defendant company and there was a benefit to Kew because she was able to trade her medical imaging business through that lease. It was not clear on the evidence whether the defendant company was a service company or an active trading company. The greater likelihood is that it was a service company. The plaintiff then submitted that its intention was to liquidate the defendant company. However, that is not a matter that I can take into account here on the question of whether or not Kew should be the subject of an order for costs. There may later be actions by a liquidator of the defendant company (funded presumably by the plaintiff) against Kew but those matters are too uncertain for me to take into account here. The plaintiff then put the converse proposition. That is, if there was no judgment against the company, there would be no possibility of an insolvent trading claim against her. However, in my view that is no more than to suggest a mere possibility. It must be always borne in mind that the power is not to be exercised lightly.
Similarly, I would not accept the submission of the plaintiff that Kew was the effective litigant. Merely because she was the sole director and shareholder and the person appearing at trial does not mean that she is the effective litigant. The plaintiff pointed to the fact that Kew had played an active part in the litigation and that the premises under the lease was the place from which she had conducted her medical practice with Davies. The plaintiff submitted that as a result, she was interested in the subject matter and that by fighting the proceeding, Kew was attempting to avoid the result of an adverse judgment against the defendant.
Although I think that these submissions of the plaintiff are correct, I am unable to accept the proposition that they lead to the conclusion that Kew was the effective litigant. To accept that argument without more would be to pay no attention to the principle of the separate legal status of the body corporate. Kew is the guiding hand and mind of the company but the facts do not mean that she is in the same position as in Australasian Academy of Natural Medicine Pty Ltd[16] where the deception practised by Dr Kumar was essential to the finding of liability. There is no evidence of any such conduct here. And the plaintiff here would always have been required to go into evidence on its rent, damages and make good claims. Any consent to judgment by the defendant would not have obviated the need to give evidence supporting the plaintiff’s damages claim. If any such claim against Kew was to be made good it would require a stronger evidentiary base than currently exists.
[16] (2003) 85 SASR 36.
The plaintiff submitted that the necessary connection between this action and Kew as a non-party and that which makes her potentially liable for costs order arises from the following features:-
1.   Kew had known that the company is insolvent;
2.   Kew had known from at least the time the debts accrued, that the company could not make payment of rent or the debt which it owed to the plaintiff;
3.   Kew deliberately forced the defendant to incur the costs of the whole proceeding (as opposed to consenting to judgment and an assessment of damages) in light of the knowledge that she had about the insolvent state of the defendant company;
4.   Kew must have known that the prospects of success of defending the action were weak because of the documentary trail which inexorably led in only one direction (in favour of the plaintiff) and the failure of Davies to appear and to give evidence; and
5.   Kew is a shareholder and director of the defendant and that is sufficient to provide the necessary connection because she was a person who would benefit if the defence was successful (because of the trading in the premises) as well as obviating any investigation by a liquidator.
Apart from paragraph 5 all of these facts are correct but for the reasons already explained, those facts do not lead to the legal conclusion sought by the plaintiff. Staying with paragraph 5, I am unable to accept the connection contended for by the plaintiff. The defence sought to obviate the liability under the fresh lease but it could not avoid the make good obligation under the old lease even if the defendant’s primary position was correct. But the abandonment of the premises has the two consequences: the commencement (at least) of the make good obligation and the end of the commercial connection between the defendant (and Kew on this argument) and the premises. And for the same reasons as I have earlier stated, the possibility of an insolvent trading or other such claim by a liquidator against Kew is too remote here for it to be taken into account as a consideration.
In response, Kew pointed out that from as early as 7 October 2015, the plaintiff knew that the defendant was unable to meet any liability on the judgment and it failed to give a timely warning to Kew about a claim for non-party costs. Second, it did not make an application for security for costs. I am unable to accept the second submission. I know of no basis upon which a plaintiff could make a claim for security for costs against a defendant which was impecunious. Rather, the proper approach is that the impecuniosity of the defendant is a risk to be accepted by the plaintiff as a matter of judgment; what follows from that is always a matter for judgment of the plaintiff.
Kew then relied upon the discussion by the learned author Professor G. E. Dal Pont in Law of Costs.[17] She referred to the discussion at paragraph 22.30 where the learned author said:-
…what is clear, therefore, is that where the applicant for a non-party costs order was aware from an early stage that its opponent on the record would be unlikely to be able to meet the applicant’s costs in the event that the latter succeeded, and that it could have made an application for security for costs, a failure to apply for security coupled with a lack of notice to the opponent that a non-party costs order would be sought, constitutes weighty grounds for refusing the application for costs against a non-party.
[17] 2^nd ed, LexisNexus Butterworths 2009.
Kew contended as follows:-
1.   An order for a non-party to pay the costs of proceedings is still regarded as exceptional;
2.   There was insufficient warning given of the application when the plaintiff knew of the impecuniosity of the defendant from a very early time;
3.   Because of the failure to give a warning, there was no opportunity for Kew to assess her position and this was only emphasised when it was known that she received a letter putting her on notice on the first day of trial leaving her insufficient time to take advice and to make decisions;
4.   The factual allegation that any legal fees incurred by the defendant company were not paid by Kew; and
5.   Neither the defence or the set-off were not in a way which could be described as acting in bad faith. This is because she said that the defence and set-off had real prospects.
I will deal with each of those arguments in the order which is convenient to me. I do not accept the submission that neither the defence or set-off were prosecuted by the company or by Kew in any mala fides way because she believed that the defence and set-off had real prospects. I think that any suggestion by Kew that she believed the defence and set-off had real prospects is illusory. That view is easily substantiated. The only way that the defence and set-off could have any real prospects was in circumstances where Davies was called to give evidence. He did not give evidence and I am satisfied this was that a deliberate decision on his part and, as a consequence of the facts before me, on the part of Kew.
I also do not accept that there is any significance in the submission that any legal fees incurred by the defendant company were not paid by Kew. The evidence before the court is that Kew caused an associated company to pay the legal fees alleging that that associated company thereby discharged a debt owed to the defendant company by so doing. Whether the fees were paid by Kew personally or she caused them to be paid is of little consequence. The important fact is that the company’s legal fees were paid. That proposition is also easily tested. If the defendant company had been placed into liquidation and the preferential payment provisions applied to this payment, the greater likelihood is that a liquidator would request the solicitors to disgorge the payments as a preference.[18]
[18] Re Emanuel (No 14) Pty Ltd (in liq) (1997) 147 ALR 281.
It is then necessary to consider the balance of the points made by Kew on the question of the exercise of discretion. I accept the first point raised by Kew that notice given to Kew was given very late. I also accept that the submission of Kew which reflects the decision of Lander J in Vestris, that the circumstances in which such an order is granted must be sufficiently exceptional to warrant such an order. I have already canvassed the decision of Lander J in Vestris upon which Kew placed reliance. Kew submitted that what she was doing was leading a defence to the claim and was not prosecuting a claim. That places the action in a different category. When considering the matters alluded to by Olsson J at 450 in Vestris, Kew submitted that she as a non-party did not benefit from the action and therefore there was no proper basis for the adverse exercise of the discretion. All that the plaintiff can point to is that Kew was a director and therefore she was a decision maker for the defendant. There is no relevance in the possibility of a claim being funded by a liquidator against directors in relation to insolvent trading. Those matters are not exceptional.
Secondly, Kew emphasised that the proceedings were not initiated and controlled by her. All that she did was to control the defence of the proceedings. That was a choice that was available to her as the guiding hand and mind of the defendant. And this was not a case where, some time during the proceeding, the plaintiff learned of the insolvency of the defendant company. That was known from at least a year prior to the commencement of the trial. In those circumstances, the failure to give notice to Kew looms much larger than it otherwise would. Kew complains that all other things considered, the warning should have been given to her from at least in 2015 at which time the defendant’s solicitors announced that the defendant was impecunious.
In this matter, a number of the decisions of the Full Court of the Supreme Court of South Australia namely Vestris, Australasian Academy of Natural Medicine Pty Ltd v Walters and Morbidelli v Resource Co Pty Ltd[19] inform the exercise of my discretion in this matter. Although I have rejected some of the five points raised by Kew, and although I have accepted the submissions of the plaintiff that the defence of these proceedings was foolhardy and that the failure to proffer any evidence was largely fatal to the prospect of the defendant, I am unable to find that the circumstances were so exceptional that an order for the joinder of Kew and an order for costs should be made against her.
[19] [2010] SASC 107.
In the exercise of my discretion, I intend to follow the considerations discussed by Lander J in Vestris at page 468. I will consider them in turn:-
1.Whether the non-party could have been joined as a party early in the proceeding: I am unable to give much weight to this consideration. In order to join Kew as a defendant, it would have been necessary for the plaintiff to have had a basis for so doing or for Kew to have done so in order to better influence the defendant’s position in the litigation. Whether such an application would have been successful at the time is uncertain; the better view is that Kew was the only controller of the defendant and so her joinder in the proceedings as a party was not of any particular significance. In turn, this places greater emphasis upon the issue of notice to Kew;
2.Whether the non-party has had any warning that an application against that party would be made: it was not until the first day of trial that a warning was given to Kew;
3.Whether in those proceedings the non-party could have applied to be joined in the proceedings and thereby have the capacity to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules; I consider that this is an irrelevant consideration because Kew would not have needed to be joined in the proceedings to have had an influence on the proceeding. Kew controlled the proceedings for the defendant. She could only have caused the defendant to submit to a judgment and leave the plaintiff to an assessment of its damages;
4.Whether if a warning had been given, the non-party could have terminated the proceedings by discontinuance, negotiations, payment or otherwise: this consideration is similarly irrelevant because the defendant was being sued by the plaintiff for a number of claims including for damages to be assessed;
5.Whether the party would otherwise be usually liable for costs can meet an order for costs and if the relevant reason that party cannot meet an order for cost: it was known from July 2015 that the defendant company was impecunious. It appears that the defendant company was a service company in a service trust arrangement and the question of its impecuniosity was determined by the indemnity it would have from trust assets. There is no evidence of the extent of those trust assets and so all that is known is that the defendant could not meet the plaintiff’s claim from at least October 2015. It could not meet a costs order for the same reason. Conversely, these are two good reasons for the defendant to have submitted to a judgment;
6.Whether the moving party should have sought an order for security for costs: I consider this has no significance because the plaintiff could not seek an order for security for costs against an impecunious defendant in these circumstances;
7.The relationship, if any, between the non-party and the party who would be usually liable for costs: Kew was a director and shareholder and was the guiding hand and mind of the defendant company. There was obviously a very close relationship;
8.Whether the non-party stood to benefit by the litigation and if so how: I consider that Kew could not have obtained any benefit from the litigation. The defendant was defending a case brought by the plaintiff for unpaid rent, damages and make good costs. The defendant was impecunious and that was known by the plaintiff from as early as July 2015. I am unable to identify how it could be said that Kew could obtain a benefit from the litigation;
9.Whether the non-party had a direct or indirect financial interest in the litigation: Kew was a director of the company which was a defendant in the proceeding. The only direct or indirect financial interest Kew had in the litigation, in that sense, was the date upon which the defendant company may be placed in liquidation and thereby further reduced the value (if any) of her share capital; and
10.Whether there has been any improper conduct on the part of the non-party: for the reasons which I have already expressed, I have been quite critical of some of the steps taken by Kew. I consider that she has been ill advised and some of the steps taken by her have been misconceived. However, I am unable to categorise that conduct as improper as that term may be understood from the discussion of Lander J in Vestris.

In the end, I am not satisfied that applying the approach of the Full Court in Vestris, Australasian Academy of Natural Medicine Pty Ltd v Walters and Morbidelli v Resource Co Pty Ltd, I am in a position to make an order for costs against Kew. Although I accept the submission that notice of intention to claim costs against Kew was given late, I am not satisfied that, in the end, that consideration is of particular significance. I do not consider that the circumstances of this case were so exceptional that they would justify an order for costs being made against Kew in light of the fact that Kew was the sole director and shareholder of a defendant company being sued.
The plaintiff in this proceeding was always required to prove its loss and its damages, and for unpaid rent at the proven agreed rate. I have earlier said that this plaintiff always had to go into evidence to some extent. As the judgment discloses, the hearing lasted about two days and judgment was given some two days later. I consider that on no view could it be said that Kew could be asked to pay the costs of the time spent in court that was necessary for the plaintiff to prove its damages. These comments are relevant to the considerations that arise if I am wrong in the exercise of my discretion.
If I am wrong in the view that I have formed, I consider that the plaintiff would only be entitled to the costs of the first day of trial and for one subsequent day directly against Kew. The first day costs reflect the costs thrown away because Kew was not able to proceed. After that the costs of only one of the two subsequent days would be allowed.
I dismiss this application.
I turn to the application for indemnity costs against the defendant.
The rules about when a court may make an order for indemnity costs are now generally well known and understood. Usually there are two authorities referred to namely the decision of Sheppard J in Colgate-Palmolive Co Pty Ltd v Cussons Pty Ltd[20] and the decision of Mulligan J in Duke Group Limited v Pilmer (No 8).[21] The relevant principles and authorities are very usefully gathered at paragraph 6 DCR r 264.85 in the text Civil Procedure South Australia.[22] I refer to that paragraph for the statements of principle and I will not include the references to authorities all of which are now very well-known and understood. The relevant principles (extracted from the paragraph of the text) are as follows:-
1.   There must be special and unusual features to justify an award of solicitor and client costs although the category of cases for such an award is open;
2.   If a proceeding has been brought for an improper purpose, such an award may be made;
3.   Unreasonable conduct short of vexation is sufficient if it merits disapproval by the court by such an order and this conduct may be viewed against the background of previous conduct of the parties to the litigation;
4.   The conduct must be referable to conduct within the litigation and not otherwise;
5.    The purpose of such an award is to compensate and not to punish.
[20] (1993) 46 FCR 225; 118 ALR 248.
[21] [1998] SASC 6699.
[22] LexisNexus vol 1.
The relevant principles were gathered by Sheppard J in Colgate-Palmolive at pages 232-234 as follows:-
It seems to me that the following principles or guidelines can be distilled out of the authorities to which I have referred:
1. The problem arises in adversary litigation, i.e. litigation as between parties at arm's length. Different considerations apply where parties may be found to be entitled to the payment of their costs out of a fund or assets being administered by or under the control of a trustee, liquidator, receiver or person in a like position, e.g. a government agency or statutory authority.
2. The ordinary rule is that, where the court orders the costs of one party to litigation to be paid by another party, the order is for payment of those costs on the party and party basis. In this court the provisions of O 62, rules 12 and 19, and the Second Schedule to the Rules will apply to the taxation. In many cases the result will be that the amount recovered by the successful party under the Order will fall short of (in many cases well short of) a complete indemnity.
3. This has been the settled practice for centuries in England.
It is a practice which is entrenched in Australia. Either legislation (perhaps in the form of an amendment to rules of court) or a decision of an intermediate court of appeal or of the High Court would be required to alter it. No doubt any consideration of whether there should be any change in the practice would require the resolution of the competing considerations mentioned by Devlin LJ in Berry v British Transport Commission and Handley JA in Cachia v Hanes on the one hand and by Rogers J in Qantas on the other. The relevant passages from the respective judgments have been earlier referred to.
4. In consequence of the settled practice which exists, the court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England.
The tests have been variously put. The court of Appeal in Andrews v Barnes (39 Ch D at 141) said the court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require."
Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston ((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule.
But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata.
5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (e.g. Messiter v Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (court of Appeal), Crisp v Keng (Supreme Court of New South Wales, 27 September 1993, unreported, court of Appeal) and an award of costs on an indemnity basis against a contemnor (e.g. Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.
6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.
I refer in particular to paragraph 5. The court lost a full day because Kew was not prepared to commence the trial. I am unable to say whether there was any evidence of misconduct on Kew’s part but the loss of the day to the cost of the plaintiff is a matter to be taken into account.
I am particularly assisted by what fell from French J (as his Honour then was) in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2).[23] There, his Honour referred to the well-known decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[24] and said (at 303):-
Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such cost that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case. The case against the BTA (a reference to one of the respondents) was paper thin. The BTA name was invoked on a sign associated with the picket and appeared in a newspaper advertisement referred to in the evidence…
[23] (1993) 46 IR 301 at 303.
[24] (1988) 81 ALR 397.
My reading of the decision of French J in J-Corp does not suggest that his Honour was there only referring to the position of a plaintiff. Lander J and Olsson J both referred to the conduct of any party to a proceeding in their decision in Vestris, and by extension of ordinary logic the conduct of a defendant is to be considered on the same basis and in the same circumstances. If a defendant persists in what should on proper consideration to be seen to be a hopeless defence because there is no defence, then circumstances arise for the exercise of the discretion.
The facts in the case at bar are slightly worse. I am satisfied that at no time did Davies ever intend to give evidence and I am also satisfied from the papers that at no time did Kew ever intend to call any witness in evidence. It was in that background that Kew embarked upon a hopeless application for the plaintiff’s claim to be dismissed on the basis of no case to answer. I have earlier described that application as ill-advised and completely misconceived. In those circumstances, it could not even be said that the defence of the defendant would rise to a description of “paper thin”. There was no defence because the defendant did not ever genuinely intend to defend the matter. Such conduct, I think, would meet the description of unreasonable conduct short of vexation which merits the disapproval of the court.
I consider that the conduct of the defendant easily meets this description. I consider therefore that my discretion to award indemnity costs is enlivened. The defendant did not address this topic in its submissions.
I am satisfied in all of the circumstances that an order should be made against the defendant that it pay the costs of the plaintiff of the proceedings on an indemnity basis.
I so order.

(1) Subject to subsection (2) and the rules, costs in any proceedings in the Civil Division will be in the discretion of the Court and may be awarded against any person (whether a party to or a witness in the proceedings or not).