John Sheahan and Anor (Respondents) v Northern Australia Land and Agency Co and Ors No. SCGRG 95/195 Judgment No. 5363 Number of Pages 7 High Court and Federal Court Procedure Costs

[1995] SASC 5363

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA MOHR, OLSSON AND NYLAND JJ

CWDS
High Court and Federal Court - appellate jurisdiction of the High Court - remission to and subsequent proceedings in supreme Court - Appeal from Full Court decision - special leave granted only in relation to the question of costs - remitted to Full Court of Supreme Court of South Australia for further consideration.

Procedure - costs - general rule - costs follow the event - indemnity costs - when ordered - Appeal against orders for costs made by the trial judge against the appellants- trial judge having regard to the evidence adduced by the appellant awarded solicitor and client costs against them - no error in principle - trial judge entitled to exercise discretion as he did - appeal lacking in merit. Corporations Lawss232(6), 468, referred to. Southern Resources Ltd and Ors v Residue Treatment Trading Co Ltd and Others (1991) 56 SASR 455; Northwest Refrigeration Services Pty Ltd v Baine Daws (WA) Pty Ltd
(1984) 157 CLR 149; John Sheahan v Hertz Australia Pty Ltd (1995) 181 LSJS
147; Casley-Smith v P.S. Evans and Sons Pty Ltd (1989) 148 LSJS 483; Knight and Anor v F.P. Special Assets Limited and Others (1992) 174 CLR 178; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397, applied.

HRNG ADELAIDE, 28 November 1995 #DATE 31:12:1995 #ADD 15:1:1996

Counsel for appellants:     Mr D K Le Poidevin

Counsel for respondents:     Mr J Cudmore

Solicitors for respondents: Ward and Partners

ORDER
Appeal dismissed.

JUDGE1 THE COURT (per OLSSON J) On 6 May 1994 this Court ordered that the appeal prosecuted by the three appellants in this matter be dismissed, for reasons which were published by me and concurred in by the other two members of the Court.

2. The three appellants thereupon sought special leave of the High Court to appeal against the order of dismissal.

3. When the matter came before the High Court special leave was refused, save as to the question of costs.

4. As to this Brennan J, as he then was, said:-
    "... Justice Perry made an order that Mr Le Poidevin and Mrs
    Le Poidevin, his mother, together with the company, pay the
    respondents' costs in the action to be taxed on a solicitor
    and client basis. His Honour expressly acknowledged that an
    order for costs in that form is made only 'in exceptional
    circumstances'. This order was the subject of a discrete
    ground of appeal to the Full Court contending, inter alia,
that the section 468 issues were not litigated between the
    respondents and the personal appellants and that it was
    unreasonable to order costs on a solicitor and client basis.

The Full Court may have overlooked this ground of appeal in
    disposing of the appeal. Their Honours simply said, 'In
    global terms, all of the other complaints voiced in the
    grounds of appeal are equally misconceived or lacking in
    substance'. Having regard to the order for costs on a
    solicitor and client basis and the making of the order
    against the personal appellants, those reasons for
    dismissing the appeal on the question of costs are
    inapposite to dispose of that question. It may be that the
    actual decision is correct but the reasons for disposing of
    unspecified issues either suggest an overlooking of the
    costs question or some error in considering it."

5. Accordingly the High Court granted special leave as to that issue, allowed the appeal, set aside the order of dismissal insofar as it related to ground 16 of the appeal and remitted that aspect to this court for further consideration and determination. Such consideration has now taken place, further submissions having been received on behalf of the parties.

6. Ground 16 of the appellants' original notice of appeal was expressed as under:-
    "16. The Defendants appeal against all Orders made by
    Justice Perry for Costs in favour of the Plaintiffs as being
    contrary to law. If the Judgment for the Plaintiffs is
    cancelled and Judgement and Orders made as requested by the
    Defendant Northern Australia Land and Agency Co. Pty. Ltd.
    the Defendants seek an Order for their costs.

Justice Perry made an Order on the 29th October, 1993 that
    the Second and the Third Defendants (Appellants) Dean
    Kiverton Le Poidevin and Gloria Dawn Le Poidevin be liable
    for the whole of the Plaintiff's costs. This is totally
    unreasonable and contrary to law. The trial of the action
    was between the Plaintiffs and the Defendant Northern
    Australia Land and Agency Co. Pty. Ltd. (not Dean Kiverton
    Le Poidevin and Gloria Dawn Le Poidevin) and therefore no
    costs should be awarded against the said Dean Kiverton Le
    Poidevin and Gloria Dawn Le Poidevin.

Justice Perry further ordered on the 4th November, 1993 that
    costs be taxed on the basis of solicitor and client and not
    party and party. In all of the circumstances of the case it
    is unreasonable to make such an Order and contrary to law
    and the said Dean Kiverton Le Poidevin and Gloria Dawn Le
    Poidevin (the directors) should not be made liable for these
    costs of an action and trial at which they were not
    parties."

7. The relevant background facts and history of the proceedings were set out in my reasons published on 6 May 1994 and there is no need, at this time, to retraverse the same ground.

8. Suffice it to reiterate that the primary proceedings brought by the respondent sought to impeach certain real estate transactions whereby land owned by Le Poidevin Industries Pty Ltd was transferred to the appellant Northern Australia Land and Agency Co Ltd ("NALAC"), of which the personal appellants were both the directors and the shareholders.

9. At first instance the liquidator of Le Poidevin Industries Pty Ltd sought to characterise the relevant transfers (which bore the date 25 August 1990, but were not presented for registration until 9 October 1991) as obvious preferences. He also claimed damages against the personal appellants on the bases that they had acted dishonestly and without due diligence as directors of Le Poidevin Industries Pty Ltd, had otherwise contravened section 232(6) of the Corporations Law and had acted fraudulently and in breach of fiduciary duty in relation to the land transfers.

10. All appellants filed a joint defence and counterclaim, which failed to plead to various factual averments in the statement of claim, but generally denied any preference or improper conduct. A validation order was sought by NALAC, as to the land transfers, pursuant to section 468 of the Corporations Law, which claim was actively promoted and supported by the personal appellants.

11. In essence the real issue initially tried by Perry J was as to the claim for validation.

12. It is to be noted that the transfers were presented for registration between the date of the statutory demand and the date of issue of the winding up summons, a situation which, on the face of it, begged serious questions as to the bona fides of the transactions.

13. Given his findings concerning the narrative facts, it came as no surprise that Perry J unhesitatingly found that the transfers constituted preferences. Moreover, also given that he was not required to proceed to make findings on the residual issues raised in the statement of claim at the time at which he published his reasons for decision, he summarily rejected the claim for validation.

14. Whilst he did so on the basis that the appellants had not discharged their onus of proof in that regard, it was implicit in his findings that:-
    - the personal appellants (and particularly D.K. Le
    Poidevin) had deliberately orchestrated the impugned
    transfers;
    - the circumstances related to the transfers placed in
    question their authenticity - specifically as to their dates
    of execution;
    - the evidence bearing on the attempted justification of
    the transactions revealed that entries in the relevant books
    of account of Le Poidevin Industries Pty Ltd, which were
    apparently kept by D.K. Le Poidevin, had been altered in a
    manner which cast a deep cloud of suspicion as to their
    genuineness. Also, in the journal, a highly suspect sheet
    of entries (on paper of different colour) was to be found.

15. The learned trial judge pointed out that D.K. Le Poidevin had been examined before a Master prior to trial. As to his evidence Perry J commented:-
    "The answers of Mr LePoidevin to the examination to which I
    have referred, which took place before a Master of this
    Court shortly before the commencement of the proceedings
    before me, in the first place, fail to satisfy me, even on
    the balance of probabilities, that any transactions took
    place in 1990, as asserted by the defendants, and also
    operate to destroy any confidence I otherwise might have
    entertained as to his involvement with the books of the
    company.

The whole of Mr LePoidevin's examination indicates
    consistent evasion, and attempts either to conceal or
    confuse both the position of the companies, and the
    circumstances of the transactions in question."

16. Later in his reasons he added:-
    "... I am totally unconvinced of the genuineness of the
    purported transactions, or that any money or moneys worth
    passed between the companies involved, and I remain
    unsatisfied that there is any proper basis upon which it
    would be right to make the orders, or any of them, sought in
    the counter claim."

17. In its totality, the decision of Perry J constituted a finding that the personal appellants (and specifically D.K. Le Poidevin) had been guilty of quite improper behaviour, which was, I must say, all the more reprehensible when it is borne in mind that D.K. Le Poidevin was a legal practitioner who must have well appreciated the enormity not only of his conduct at the time, but also of maintaining or promoting before this court a case which he must have known was false and utterly without merit.

18. On 4 November 1993 Perry J published separate reasons for decision dealing with the question of costs.

19. As to this issue, inter alia, he said:-
    "He (counsel for the plaintiffs) bases his application on
    the submission that the defendant's defence was so
    unmeritorious that it should not have been pursued, and that
the s.468 issues should not have been brought to trial.

The case is an unusual one. There is little doubt that the
    relevant transactions would have been validated if the
    defendants had been able to satisfy me that there was a bona
    fide transaction for value underlying the transfers which
    were impugned. However, this it has failed to do, for the
    reasons which appear in the judgment which I pronounced on
    29 October 1993.

I was totally unconvinced of the genuineness of various book
    entries which the defendants contended proved the underlined
    transaction, and I was led to reject the counterclaim
    seeking validation of the transfers by reason of that view
    considered against the background of the absence from the
    witness box of anyone involved in the transaction who might
    have been able to speak to its authenticity.

It is true that the plaintiffs would be on firmer ground if
    I had reached the point of a finding of deliberate
    concoction or fraud or fabrication. I did not go so far as
    to make such a finding. It was sufficient to dispose of the
    counterclaim to reach the conclusion which I did, namely,
    that the defendants had failed to satisfy me that on the
    balance of probabilities that there was a genuine underlying
    transaction to support the transfers.

Mr Cudmore draws attention to the fact that there was a
    failed application by the plaintiffs for summary judgment
limited to the s.468 claim, and that the basis upon which
    the matter came to trial on that issue was that there was at
    least an arguable case by the defendants either against the
application of s.468 or for an order validating the relevant
    transaction pursuant to that section.

It seems to me that given the history of the matter, it is
    to say the least surprising that at the end of the day so
    little evidence was offered to support the alleged
    underlying transaction, and that what evidence was offered
    was so fragmentary and so unconvincing.

The question of costs is completely within the discretion of
    the Court. I acknowledge that it is only in exceptional
    circumstances that costs to a successful party are awarded
    other than on a party and party basis. In this case,
    however, the defence, including the prosecution of the
    counterclaim, was so unmeritorious and so lacking in
    credibility that in my opinion it is a proper case in which
    to order the defendants to pay costs on a solicitor and
    client basis."

20. It is, at once, to be seen that Perry J had well in mind the unusual nature of the order which he was making and the fact that it could only have been warranted by exceptional circumstances. He was satisfied that such circumstances had been revealed by the evidence before him.

21. It is stating the obvious to say that an order as to costs is always a discretionary order, although one to be based upon a proper judicial approach. As such an appellate court will only interfere where there is shown to be a demonstrable error of principle or the decision appealed against is so unreasonable or unjust as to require the appellate court to interfere. (Southern Resources Ltd and Others v Residue Treatment and Trading Co Ltd and Others (1991) 56 SASR 455, Norwest Refrigeration Services Pty Ltd v Baine Daws (WA) Pty Ltd (1984) 157 CLR 149 and John Sheahan v Hertz Australia Pty Ltd
(1995) 181 LSJS 147.)

22. Ground 16 of the original notice of appeal raises two separate issues, namely:-
    (1) whether a solicitor and client order was warranted
    against any appellant; and

(2) whether, having regard to the fact that NALAC was the
    appellant having primary carriage of the counterclaim for
    validation, it was proper to make any order as to costs
    against the personal appellants.

23. The first aspect is shortly disposed of. There can be no doubt that an honest party in the situation of the appellants, properly advised, must have realised, at the outset, that there was no merit whatsoever in the defence and counterclaim as to the issues before Perry J and that there were no prospects of success. Instead the appellants, collectively, joined in promoting before the court a case which was patently illfounded and bound to failure. The whole situation cried aloud the word "preference" and the very form and content of the transfers and the state of the corporate books of account reeked of falsehood. The absence of suitable witness evidence to support the genuineness of the impeached transactions was, in itself, a telling factor, as identified by Perry J.

24. The situation was thus one which attracted the reasoning expressed in Casley-Smith v F.S. Evans and Sons Pty Ltd (1989) 148 LSJS 483 at 488. The rationale for the order made in this case - certainly as against NALAC - was the satisfaction on the part of Perry J of the existence of improper conduct which had had the effect of imposing an undue burden on the plaintiffs at first instance.

25. As to the second aspect the court is entitled to view the proceedings in their broad context (Casley Smith v F.S. Evans and Sons Pty Ltd (supra)). Moreover, it is also entitled to consider who were (to employ the expression adopted by Mason CJ and Deane J in Knight and Another v F.P. Special Assets Limited and Others (1992) 174 CLR 178 at 188-9) the "real parties" in the proceedings.

26. Whilst care must be taken to separately identify the personal capacities of the personal appellants by way of contrast with their roles and responsibilities as the directors and shareholders of NALAC, the fact remains that they knowingly promoted, or joined in promoting, the defence and counter claim here under consideration in their own interest rather than that of NALAC. They did so by resort to what was found to be quite improper conduct which, on the face of it, necessarily gave rise to a deep suspicion of apparent falsification of documents and records. Such an inference is inevitable, even given that Perry J stopped short of making a finding of fraud. There were aspects of this case of the type adverted to in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397 at 400-1.

27. It is true to say that Perry J had the inestimable benefit of the total "atmosphere" of the trial and of forming a clear impression of where the truth lay and what merit or lack of merit existed. He formed the view that the conduct of the personal appellants was such as to warrant an exceptional order of the type made.

28. In my opinion he made no error of principle and the unusual circumstances of this case were such as to fairly entitle him to exercise his discretion in the manner in which he did. Indeed, I would go so far as to say that, when one closely examines the material in this case, a conclusion is rapidly arrived at that, if Perry J erred at all, it was in the restraint with which he characterised the plain and compelling inferences which necessarily arose. For myself I would have concluded that the personal appellants were clearly promoting, or joining in promoting, a defence and counter claim which, to their knowledge was false and involved deliberate fabrication on the part of D.K. Le Poidevin. In that regard the evidence pointed, unerringly, in a single direction.

29. Whilst I freely confess that I was guilty of an omission, in my earlier reasons, to specifically dilate on this aspect of the appeal, I was prompted so to approach the matter on the basis that ground 16 was equally as lacking in merit as a number of the other pleas which were summarily rejected.

30. I would, once again, dismiss the appeal as to ground 16.