HM&O Investments Pty Ltd (In Liq) v Ingram

[2013] NSWSC 1778

Supreme Court

New South Wales

Medium Neutral Citation:	HM&O Investments Pty Ltd (In Liq) v Ingram [2013] NSWSC 1778
Hearing dates:	18 - 21 November 2013
Decision date:	03 December 2013
Jurisdiction:	Equity Division - Commercial List
Before:	Stevenson J
Decision:	Notice of Motion dismissed
Catchwords:	COSTS - special order for costs against non-parties - whether non-parties are the "real litigants" PRACTICE AND PROCEDURE - civil - jurisdiction to make order - whether Court is functus officio
Legislation Cited:	Civil Procedure Act 2005 Conveyancing Act 1919
Cases Cited:	Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 Gore v Justice Corp Pty Ltd [2002] FCA 354; (2002) 189 ALR 712 Heartwood Architectural Timber & Joinery Pty Ltd v Redchip Lawyers [2009] QSC 195; [2009] 2 Qd R 499 HM&O Investments Pty Ltd v Ingram [2012] NSWSC 958 HM&O Investments Pty Ltd v Ingram [2012] NSWSC 1225 Knight v FP Special Assets Ltd (1992) 174 CLR 178 Short v Crawley (No 45) [2013] NSWSC 1541 UTSA Pty Ltd (In Liq) v Ultra Tune Australia Pty Ltd [1998] VSC 13; [1999] 1 VR 204
Category:	Costs
Parties:	Bradley Phillip Ingram (first applicant) Glenda Louise Ingram (second applicant) York Precision Plastics Pty Limited (first respondent) Jellicoe Nominees Pty Limited (second respondent) Hendy Investments Pty Limited (third respondent) Saints Management Pty Limited (fourth respondent)
Representation:	Counsel: G Curtin SC with C Bannan (applicants) A Fernon (respondents) Solicitors: TressCox Lawyers (applicants) Yates Beaggi Lawyers (respondents)
File Number(s):	SC 2009/297464
Publication restriction:	Nil

Judgment

Background

1. Between 1985 and 2007 the defendants, Mr and Mrs Ingram, conducted a business involving the manufacture and design of outdoor playground equipment for use in childcare centres, schools and the like.

1. By contracts exchanged on 7 March 2007, and settled on 2 April 2007, Mr and Mrs Ingram sold that business to the plaintiffs, HM&O Investments Pty Ltd and Teach & Play Pty Ltd.

1. In these proceedings, which were heard by McDougall J over 11 days during 2011 and 2012, HM&O Investments and Teach & Play alleged that Mr and Mrs Ingram had engaged in misleading or deceptive conduct in relation to the sale and sought damages in the order of $5 million.

1. By a judgment delivered on 31 August 2012, McDougall J awarded HM&O Investments and Teach & Play damages of $10,000: HM&O Investments Pty Ltd v Ingram [2012] NSWSC 958.

1. His Honour concluded that HM&O Investments and Teach & Play had, in substance, failed and, on 26 September 2012, ordered that they pay Mr and Mrs Ingram's costs of the proceedings. His Honour declined to order that HM&O Investments and Teach & Play pay those costs on an indemnity basis: HM&O Investments Pty Ltd v Ingram [2012] NSWSC 1225.

1. On 30 October 2012 each of HM&O Investments and Teach & Play were placed into liquidation.

Application for a special costs order

1. By Notice of Motion filed on 17 May 2013, Mr and Mrs Ingram seek an order, pursuant to s 98(1) of the Civil Procedure Act 2005, that each of the following companies be jointly and severally liable to pay their costs of these proceedings:

(a)   York Precision Plastics Pty Ltd;

(b)   Jellicoe Nominees Pty Ltd;

(c)   Hendy Investments Pty Ltd; and

(d)   Saints Management Pty Ltd.

1. Each of those entities is "related" to HM&O Investments in that:

(a)   HM&O Investments has, through another company, a 57 per cent interest in York Precision Plastics; and

(b)   Jellicoe Nominees, Hendy Investments and Saints Management are the ultimate beneficial owners of HM&O Investments and of Teach & Play.

Functus officio?

1. Mr Fernon, who appeared for each of the respondents to the Notice of Motion, submitted that I had no jurisdiction to make the order sought for the reason that the Court is functus officio, by reason of the costs order already made.

1. I do not accept that submission. The authorities make clear that an application for an order for costs against a non-party involves the exercise by the Court "of a new discretion and not a re-agitation of issues previously considered": UTSA Pty Ltd (In Liq) v Ultra Tune Australia Pty Ltd [1998] VSC 13; [1999] 1 VR 204 at [9] per Chernov J; following the Full Court of the Federal Court in Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224; see also Heartwood Architectural Timber & Joinery Pty Ltd v Redchip Lawyers [2009] QSC 195; [2009] 2 Qd R 499 at [54] per Applegarth J and Short v Crawley (No 45) [2013] NSWSC 1541 at [33] per White J.

1. Mr Fernon did not otherwise dispute that I had the power to make an order in the terms sought by Mr and Mrs Ingram.

Principles

1. The general rule is that a costs order will not be made against a non-party. There are, however, "a variety of circumstances in which considerations of justice may, in accordance with general principles relating to the awards of costs, support an order for costs against a non-party" (Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192 per Mason CJ and Deane J).

1. The power to order costs against a non-party should be exercised sparingly (see, for example, Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 and Gore v Justice Corp Pty Ltd [2002] FCA 354; (2002) 189 ALR 712 at [27]).

1. Normally it is necessary to show that the party against whom the costs order is sought is the "real litigant" (Knight at 202 per Dawson J) or the "real party" (FPM Constructionsv Council of the City of Blue Mountains [2005] NSWCA 340 at [205]).

1. As to the "variety of circumstances" to which the Court should have regard in exercising its discretion, Basten JA (with whom Beazley JA (as her Honour then was) and Giles JA agreed on this subject) said in FPM Constructions (at [210]):

"It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:

(a) the unsuccessful party to the proceedings was the moving party and not the defendant;

(b) the source of funds for the litigation was the non-party or its principal;

(c) the conduct of the litigation was unreasonable or improper;

(d) non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and

(e) the unsuccessful party was insolvent or could otherwise be described as a person of straw."

Application of principles

1. It was common ground that York Precision Plastics directly funded the litigation before McDougall J, to the level of something in the order of $1.4 million.

1. That funding was provided by way of loan. The evidence does not reveal during what period the funding was provided or what proportion of the total costs incurred by HM&O Investments and Teach & Play was funded by York Precision Plastics.

1. HM&O Investments and Teach & Play are "related" to York Precision Plastics in the manner I have described.

1. However, there is no suggestion in the evidence that the arrangements between York Precision Plastics and HM&O Investments and Teach & Play for the funding of litigation were otherwise than a genuine loan repayable on some agreed basis (albeit one not revealed in the evidence before me).

1. I accept Mr Fernon's submission that the provision of finance by York Precision Plastics did not give it an interest in the proceedings so as to make it the "real litigant" in the proceedings. No doubt York Precision Plastics wished to be repaid. However, I cannot conclude that that was the reason that HM&O Investments and Teach & Play prosecuted the proceedings. Had HM&O Investments and Teach & Play been successful in the proceedings, the fruits of success would have been enjoyed by those companies, subject to their obligations to repay to York Precision Plastics the amount advanced.

1. So far as concerns Jellicoe Nominees, Hendy Investments and Saints Management, the evidence revealed no more than that those entities are the trustees of family trusts for the benefit of the directors of HM&O Investments and Teach & Play, and that those companies have the ultimate beneficial interest in HM&O Investments and, thus Teach & Play.

1. However, this fact alone is not sufficient to justify a special order for costs (see FPM Constructions at [215]).

1. No application was made in these proceedings for an order that HM&O Investments and Teach & Play provide security for costs upon the basis that the proceedings were truly being brought for the benefit of Jellicoe Nominees, Hendy Investments and Saints Management. Indeed, Mr Curtin SC, who appeared with Mr Bannan for Mr and Mrs Ingram, accepted that, on the basis of the then financial position of HM&O Investments and Teach & Play, no such application could have been justified.

1. As is made clear in FPM Constructions, a factor relevant to the making of a costs order against a non-party is if "the conduct of the litigation was unreasonable or improper" (see [15] above).

1. I heard this application concurrently with an application made by Mr and Mrs Ingram, in separate proceedings, for relief under s 37A of the Conveyancing Act 1919. That claim related to the transfer by HM&O Investments of certain shares and units to a company known as Y Twelve Pty Ltd. Those transfers were made on the day before McDougall J delivered his principal judgment in these proceedings and were made, as I have found, with the intention of defrauding creditors and, in particular, Mr and Mrs Ingram (see Ingram v HM&O Investments Pty Ltd [2013] NSWSC 1777). Those transfers were made while these proceedings were pending and, I have found, in anticipation of an adverse result in these proceedings.

1. But the transfers did not comprise any part of the manner in which HM&O Investments (let alone Teach & Play) conducted these proceedings. They do not bespeak unreasonableness or impropriety concerning the conduct of these proceedings such as would warrant exercise of the jurisdiction to make a special costs order.

1. In any event, the conduct I found to have enlivened the Court's jurisdiction under s 37A was not that of any of the respondents to this Notice of Motion.

Conclusion

1. For those reasons, I am not satisfied that there is a basis upon which I should make the order sought by Mr and Mrs Ingram against the respondent companies.

1. The Notice of Motion of 17 May 2013 must be dismissed.

1. I will hear argument as to costs.

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Decision last updated: 03 December 2013