Gadd v New Wave Aerospace Pty Ltd (No 2) - [2020] SADC 166

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
GADD & ORS v NEW WAVE AEROSPACE PTY LTD (No 2)
[2020] SADC 166
Decision of His Honour Judge O'Sullivan
27 November 2020
ARBITRATION - COSTS - ARBITRATOR'S FEES
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - PARTIES AND NON-PARTIES - NON-PARTIES GENERALLY - DIRECTOR OF COMPANY
The applicants seek a costs order against a non-party - Stephen Lindsay Gordon Marks (“Mr Marks”).
Mr Marks is the respondent’s sole director and shareholder.
In March 2019 Mr Hugh McPharlin was appointed as arbitrator to determine financial issues in the proceedings. The trial of matters not referred to the arbitrator was held in May 2019.
The arbitrator published an Award (“First Award”) on 21 June 2019 in which some of the determinations were qualified (“qualified determinations”). The Court delivered its reasons on 31 January 2020 in which it adopted those of the arbitrator’s determinations that were not qualified. The applicants submitted that the Court should proceed to finalise the qualified determinations itself. The respondent, who was represented by Mr Marks at the arbitration and the trial, submitted that the First Award should be adopted or that the qualified determinations should be remitted to the arbitrator for further determination. The qualified determinations were remitted to the arbitrator.
The arbitrator published a second Award (“Second Award”) on 18 June 2020. By interlocutory application filed 30 June 2020, the applicants applied to the Court to adopt the Second Award. The respondent, represented by Mr Marks, opposed the application.
The applicants have paid the arbitrator's fees.
Prior to argument on whether the Second Award should be adopted by the Court as part of its judgment, the respondent was placed into voluntary liquidation such that the proceedings were stayed. Consequently, the Second Award has not been adopted by the Court as part of its judgment.
In an interlocutory application filed 30 July 2020, the applicants sought, amongst other things, an order that Mr Marks pay the arbitrator’s fees for publishing both Awards.
Although not adopted, in his Second Award the arbitrator found that the respondent had paid the sum of $1,429,922 out of the respondent’s bank accounts into which the applicants (and others) had paid to related entities money for outgoings related to the maintenance and operation of the Marina run by the respondent. This figure was reduced to $658,166 after adjustment for related party loan accounts and non-cash profit distributions.
The circumstances in which in the exercise of discretion a Court might order a non-party to pay costs discussed and applied.
Held: That Stephen Lindsay Gordon Marks pay to the applicants the sum of $207,240.40 such sum representing the payment made by the applicants for Mr McPharlin’s fees of and incidental to his First and Second Awards.
Corporations Act 2001 s 500(2); District Court Act 1991 s 42(1), referred to.
Knight v FP Special Assets Ltd (1992) 174 CLR 178; Price v BW & RD Smart [2020] SASCFC 2; Vestris & Anor…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] SADC 166
Decision Date: 27 November 2020

CaseChat Overview and Summary

The applicants, Gadd, seek a costs order against Stephen Lindsay Gordon Marks, who is not a party to the proceedings. This case involves the applicant’s attempt to recover arbitrator’s fees from Mr Marks. Mr Marks is a director of New Wave Aerospace Pty Ltd, the respondent in the arbitration. The dispute arises from an arbitration where Gadd was awarded costs, including arbitrator’s fees. The applicants argue that Mr Marks, as a director of the respondent company, is liable for the costs awarded against the company. The court must determine whether Mr Marks can be held liable for these costs despite not being a party to the arbitration or the current proceedings.

The legal issues before the court include the extent to which a non-party, specifically a director of a company, can be held liable for costs awarded in an arbitration against the company. The applicants contend that Mr Marks should be held liable due to his role as a director and the company’s insolvency. The court must also consider the principles governing the imposition of costs on non-parties in arbitration and the applicable legal framework. The court examines whether the director’s personal liability extends to costs awarded in arbitration and if there are circumstances under which such liability can be imposed.

The court found that Mr Marks, as a director of the respondent company, could be held liable for the costs awarded in the arbitration. The reasoning focused on the connection between Mr Marks’ role in the company and the company’s insolvency. The court held that when a company is insolvent and a director is involved in the arbitration process, there may be grounds to impose personal liability on the director for costs incurred. The court concluded that Mr Marks could be held liable for the costs awarded against the company, including the arbitrator’s fees, based on his role and the circumstances of the case.

The final orders of the court are that Stephen Lindsay Gordon Marks is liable for the costs awarded in the arbitration, including the arbitrator’s fees. This decision provides clarity on the potential personal liability of directors in similar circumstances, where a company is insolvent and a director has been involved in the arbitration process.

Orders