In the Matter of Bernsteen Pty Ltd (in Liq) (No 2)

[2018] SASC 113

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

IN THE MATTER OF BERNSTEEN PTY LTD (IN LIQ) (NO 2)

[2018] SASC 113

Judgment of The Honourable Justice Doyle

10 August 2018

PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - THIRD PARTIES

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS

Application for a costs order by a person who participated in the proceedings as a non-party entitled to be heard under r 2.13 of the Corporations Rules 2003 (SA).

Held (per Doyle J):

1. Section 40 of the Supreme Court Act 1935 (SA) is cast in sufficiently wide terms to permit the Court to make an order for costs for the benefit of a non-party. But such an order will only be justified in rare circumstances.

2.       Costs order not appropriate in the circumstances of this case.  Application dismissed.

Corporations Act 2001 (Cth) s 1322(4); Supreme Court Act 1935 (SA) s 40; Supreme Court Civil Rules 2006 (SA) r 89(1); Corporations Rules 2003 (SA) r 2.13(1), referred to.
In the Matter of Bernsteen Pty Ltd (in liq) [2018] SASC 76; O’Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559; Fletcher and Barnet, in the matter of Octaviar Ltd (No 4) [2012] FCA 344; Re Pan Pharmaceuticals Ltd; Selim v McGrath (2004) 48 ACSR 681; Hewson v Gothard [2014] FCA 412; Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, considered.

IN THE MATTER OF BERNSTEEN PTY LTD (IN LIQ) (NO 2)
[2018] SASC 113

Civil.

1. DOYLE J:             The plaintiff is the former liquidator of Bernsteen Pty Ltd (in liq). He brought these proceedings seeking declaratory relief under s 1322(4) of the Corporations Act 2001 (Cth). The declarations sought related to the conduct of certain meetings of the committee of inspection of Bernsteen that occurred in November 2005 and September 2011 when the plaintiff was the liquidator of that company.

2. On 6 June 2018 I dismissed the plaintiff’s claim: In the Matter of Bernsteen Pty Ltd (in liq)[1] (my earlier reasons). My reason for doing so was that I did not accept that the plaintiff qualified as an “interested person” for the purposes of s 1322(4). I determined this as a preliminary issue without ever embarking upon a full hearing of the plaintiff’s claim.

   [1]    In the Matter of Bernsteen Pty Ltd (in liq) [2018] SASC 76.

3. Mr Viscariello is a non-party to these proceedings who has nevertheless played an active role in the proceedings.  He seeks an order that the plaintiff pay his costs of and incidental to these proceedings, payable on an indemnity or solicitor and own client basis, or in the alternative on a party and party basis. 

4. The plaintiff opposes this application for costs, and contends that it is appropriate that there be no order as to costs. 

5. These are my reasons for rejecting Mr Viscariello’s application for costs and making an order that there be no order as to costs. 

   Background

6. The complicated background and context to these proceedings, and their progress through to disposition, have been summarised in my earlier reasons.  These reasons should be read together with those earlier reasons.

7. When the plaintiff commenced these proceedings in 2012, he was the liquidator of Bernsteen.  He apparently commenced the proceedings at the behest of ASIC, as part of its investigation into his conduct of the administration and then liquidation of Bernsteen and another related company.

8. These proceedings did not progress quickly or smoothly.  In essence, this was because of the potential for overlap with some other Supreme Court proceedings issued by Mr Viscariello against the plaintiff.  The Judge managing these proceedings (Kourakis CJ), who was also the trial judge in the other proceedings, adjourned these proceedings pending the hearing and determination of the other proceedings.  Judgment on the trial in the other proceedings was delivered in December 2014.

9. In April 2015, no doubt on account of the findings made in the other proceedings, the plaintiff consented to an order that he be removed as the liquidator of Bernsteen. Hence, by the time these proceedings were ultimately dismissed by me, the plaintiff was no longer the liquidator of Bernsteen. Indeed, my essential reason for dismissing these proceedings was that the plaintiff’s status as the former liquidator of Bernsteen was not a sufficient interest for the purposes of s 1322(4), and he did not otherwise identify any sufficient interest. The mere fact that ASIC was continuing to request or require that he press for the declaratory relief sought was not enough.

10. While thus dismissing the proceedings, I expressly observed in my earlier reasons that the outcome on this issue would have been different back in 2012 when the plaintiff was still the liquidator. In other words, the plaintiff was an interested person for the purposes of s 1322(4) at the time the proceedings were brought.

11. In May 2012, Mr Viscariello (who claimed an interest as a shareholder, creditor and former director of Bernsteen) filed an application for leave to intervene in these proceedings pursuant to r 89(1) of the Supreme Court Civil Rules 2006 (SA).  He was later given leave to be heard as a non-party pursuant to r 2.13(1) of the Corporations Rules 2003 (SA), without his application for intervention being determined. 

12. Mr Viscariello continued to play an active role in these proceedings, albeit that the proceedings progressed in a slow and interrupted fashion by reason of the complications arising out of the other proceedings, which have been explained in some more detail in my earlier reasons.

13. At times early on in these proceedings Mr Viscariello was represented; at other times he represented himself.  He generally opposed the relief sought. 

14. After judgment in the trial of the other proceedings, Mr Viscariello sought an order that these proceedings be stayed as an abuse of process (given their overlap with issues addressed in the other proceedings).  The plaintiff, on the other hand, requested that Kourakis CJ recuse himself from any further involvement in these proceedings.  Viscariello and the plaintiff each opposed the application brought by the other.  These applications were heard by Kourakis CJ but never determined.  The appeal in the other proceedings intervened, and following the outcome in that appeal, Kourakis CJ recused himself from further involvement in these proceedings. 

15. On the hearing that occurred before me, I was content to hear from Mr Viscariello as a non-party under r 2.13 of the Corporations Rules without formally determining his application to intervene under r 89(1) of the Supreme Court Civil Rules. He challenged the plaintiff’s status as an interested person, and, as mentioned, was successful in this respect.  That said, the plaintiff had consented to and facilitated a preliminary determination of this issue, and, like Mr Viscariello, directed my attention to the relevant authorities and considerations.

    Analysis

16. I accept that I have the power and discretion to order costs in favour of a non-party. Section 40 of the Supreme Court Act 1935 (SA) is cast in sufficiently wide terms to permit such an order.[2]  That said, I also accept that it will be rare that the circumstances will justify an exercise of this power.[3]

    [2]    O’Keefe v HayesKnight GTO Pty Ltd [2005] FCA 1559 at [20]-[25].

    [3]    Fletcher and Barnet, In the Matter of Octaviar Ltd (No 4) [2012] FCA 344 at [12]; Re Pan Pharmaceuticals Ltd; Selim v McGrath (2004) 48 ACSR 681 at [19]-[20].

17. As Emmett J explained in Fletcher and Barnet, In the Matter of Octaviar Ltd (No 4):[4]

    There is no doubt that the Court has power to order costs in favour of a non-party.  Section 43 of the Federal Court of Australia Act 1976 (Cth) is cast in sufficiently wide terms to enable the Court to make an order for costs in the proceeding for the benefit of a non-party. Nevertheless, the making of an order for costs in favour of a non-party will be exceptional and any application for such an order must be treated with considerable caution. Regard must be had in each case to the particular circumstances and the requirements of reason and justice, and the nature of the relationship between the non-party and the litigation will be relevant in that regard (see O’Keeffe v Hayes Knight GTO Pty Limited [2005] FCA 1559 at [24]). In general, a special factor outside the ordinary and expected course of events, engendering a justifiable expectation, in the mind of a non-party, of compensation for costs, must exist before an order will be made for costs in favour of a non-party against a party. In general, a person who seeks, and is granted, leave under rule 2.13 of the Corporations Rules to appear and be heard, thereby limiting exposure to an order for costs, can have little expectation of being awarded costs (see Re Pan Pharmaceuticals Limited; Selim v McGrath (2004) 48 ACSR 681 at [20]).

    [4]    Fletcher and Barnet, In the Matter of Octaviar Ltd (No 4) [2012] FCA 344 at [12]; applied, for example, in Hewson v Gothard [2014] FCA 412 at [25]-[26].

18. In considering Mr Viscariello’s application, I have taken account of the following matters that weigh to some extent in his favour:

    1.   While Mr Viscariello was heard as a non-party under r 2.13, he also had an unresolved application (which he was continuing to press when the proceedings were dismissed) to be granted the status of intervenor.

    2.   Given his interest, Mr Viscariello was a foreseeable and appropriate contradictor.  While the replacement liquidator might also have been an appropriate contradictor (and perhaps a more appropriate contradictor) from the date of his appointment, he did not seek to assume this role.

    3.   While the plaintiff brought and maintained these proceedings at the instigation of ASIC, I do not regard this as a matter that assists the plaintiff on the issue of costs.  The plaintiff brought the proceedings in his own name and must be taken to have assumed responsibility for them, including whatever costs exposure they entailed. 

    4.   The proceedings were ultimately dismissed, meaning that the plaintiff was unsuccessful in obtaining the declaratory relief that he sought.

    5.   While some of the issues raised by Mr Viscariello during the proceedings were either not successful or remain unresolved, the ultimate outcome reflected the outcome he was contending for.

19. However, in my view there are some other considerations that weigh against an order in Mr Viscariello’s favour, or that at least mitigate the significance of the matters in his favour.

20. The first of these is that while the plaintiff’s proceedings were unsuccessful, it is significant that I expressly found that the threshold obstacle to the claim that resulted in their dismissal did not exist back in 2012 when the proceedings were commenced. The plaintiff was an interested person for the purposes of s 1322(4) of the Corporations Act at that stage.  The proceedings only became flawed in this respect at some point following the plaintiff’s removal as liquidator. 

21. As a consequence of the reason the proceedings were dismissed, the ‘underlying’ merit of these proceedings has not been determined.  I do not consider it appropriate in the context of a costs dispute to undertake any detailed examination of the merit or otherwise of the proceedings.  It cannot be assumed, and I do not assume, that the proceedings would not have succeeded if they had been heard and determined at some earlier time when the plaintiff was an interested party.  A fortiori, I do not accept Mr Viscariello’s submission that the plaintiff should not have commenced or maintained these proceedings on the basis they had no chance of success.[5] 

    [5]    In the sense usually relied upon in seeking costs on an indemnity basis or in otherwise departing from the usual approach to costs: Re Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 230-234; applied in this context in O’Keefe v Hayes Knight GTO Pty Ltd [2005] FCA 1559 at [34].

22. Related to this, Mr Viscariello continues to allege that the plaintiff’s conduct in bringing and maintaining these proceedings involved an abuse of process (by reason of their overlap with the other proceedings), or was otherwise unreasonable or lacking in appropriate candour.  However, these allegations are all denied, and there has not been any finding to support them.  Nor would I now make any such finding.  There is not any obvious merit in the allegations, and to the extent that their ultimate determination might require more detailed consideration (including the hearing of oral evidence) I do not consider it appropriate to embark upon such an inquiry in order to determine the issue of costs.

23. Finally, it is also relevant that at various stages of these proceedings, Mr Viscariello was unrepresented.  He was unrepresented during the hearings before me, including on the argument that led to the dismissal of the plaintiff's proceedings.  Indeed, as I understand it, the only substantive issues on which Mr Viscariello was represented were the unresolved applications heard by Kourakis CJ.  For those periods when he was unrepresented, Mr Viscariello would not be entitled to recover any costs (save for any out-of-pocket costs he might have incurred).[6]

    [6]    Cachia v Hanes (1994) 179 CLR 403.

24. Bearing all of the above in mind, I am not satisfied that it is appropriate to make any costs order in Mr Viscariello’s favour.  That is not to say that Mr Viscariello’s involvement was not of assistance to the Court or that he otherwise acted unreasonably in his participation in these proceedings.  Rather, it is simply a reflection of the unusual nature of the order sought, and the absence of a sufficient basis in the circumstances of this case for such an order to be made.

25. I make the following order:

    1.   No order as to the costs of these proceedings.