Johns Perry Industries Pty Ltd v Troisi Steel Fabrications Pty Ltd (Receiver and Manager Appointed) No. SCGRG 91/2627 Judgment No. 3769 Number of Pages 7 Practice Costs

[1992] SASC 3769

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA PERRY J

CWDS
Practice - costs - Receiver and manager appointed to plaintiff company - previous order that plaintiff provide security for costs on the basis that a secured creditor should not be permitted to pursue its own interests at no risk as to costs - plaintiff did not comply with the order for security - defendant then obtained an order striking the action out, and applied for an order that the costs of action be paid jointly and severally by the plaintiff and the plaintiff's receiver and manager - consideration of the question whether the Court's discretion as to costs could be exercised in favour of an order operating against a non-party - held, applying Knight v SP Special Assets Ltd (1992) 66 ALJR 560 that the discretion extends to the making of such an order - held further that the circumstances justified the making of the order as sought. Supreme Court Acts 40 and Supreme Court Rules R
101.01(1). Knight v SP Special Assets Ltd (1992) 66 ALJR 560, considered.

HRNG ADELAIDE, 25 November 1992 #DATE 21:12:1992
Counsel for applicant:     Mr N Swan
Solicitors for applicant:    Finlaysons
Counsel for respondent:     Mr M Evans
Solicitors for respondent: Ross and McCarthy

ORDER
Defendant to have its costs of action against the plaintiff to be taxed.

JUDGE1 PERRY J The defendant applies for an order that its costs of action be "the defendant's costs which the plaintiff and the receiver and manager of the plaintiff, William Richard Baker, shall be jointly and severally liable to pay." The history of the application is as follows. 2. By judgment delivered on 5 June 1992 (unreported, judgment number 3448), I allowed an appeal against the dismissal of the defendant's application for an order that the plaintiff provide security for the defendant's costs. In those reasons, I described the plaintiff's claim in the following terms: "In the Statement of Claim attached to the summons the plaintiff advances a claim for some $540,000, together with interest, said to be due by the defendant pursuant to a contract for the construction by the plaintiff of certain sub-contracted steel fabrication works forming part of a head contract entered into between the defendant and South Australian Co-Operative Bulk Handling Ltd with respect to the latter's grain terminal at Port Giles." 3. A receiver and manager was appointed to the plaintiff company by Westpac Banking Corporation on 26 October 1987 pursuant to a registered debenture in the nature of a floating charge over its assets. In the reasons for judgment delivered on 5 June 1992 I make some observations as to the financial position of the plaintiff as disclosed in the material then before the Court. Further material now put before the Court indicates that the position has worsened, and it seems likely that there will be no assets available to satisfy the debt due by the plaintiff to Westpac, which is of the order of $440,000. It was conceded by Mr Wilkinson of counsel for the plaintiff during the hearing of the previous appeal that the action was "substantially for the benefit of Westpac" and that the receiver was "running the action" (see reasons of 6 June 1992 at p.4). In allowing the appeal and in proceeding to make an order for security for costs, I acted on the principle that, generally speaking, a secured creditor should not be permitted to pursue its own interests in an action brought in the name of the debtor at no risk as to costs should it fail. I then ordered that the plaintiff provide by way of a bank guarantee or other security to the satisfaction of a Master, security towards the payment of the costs of the defendant in the sum of $100,000, such security to be lodged in Court or otherwise dealt with in accordance with any further direction of the Court or a Master. 4. Following the making of that order, it appears that Westpac had second thoughts about proceeding with the action. 5. By application dated 13 July 1992, the defendant applied for the proceedings to be struck out for want of prosecution, and for a judgment on its counterclaim. 6. On 16 July 1992, when that application came on for hearing before a Master, the plaintiff advanced no submissions in opposition to the relief sought, whereupon the action was struck out for want of prosecution, and judgment was entered on the counterclaim for the defendant (the plaintiff by counterclaim) against the plaintiff (the defendant by counterclaim) for damages to be assessed. The Master who heard the application reserved the question of the costs of the action and counterclaim and of the application that the matter be struck out. Subsequently, on 6 August 1992, the present application was brought. 7. On the hearing of the application, Mr Swan, who appeared for the defendant, put a number of submissions on the question of jurisdiction. Recognising that the receiver and manager of the plaintiff is not strictly a party to the proceedings in the sense that he appears on the record as a party, Mr Swan contended that, nonetheless, the discretion in the Court as to the making of an order for costs conferred by s.40 of the Supreme Court Act, which must be read together with Rule 101 of the Supreme Court Rules, was wide enough to permit an order of the kind sought. He contended further that circumstances were such that the discretion should be exercised in favour of making the order sought. 8. Mr Evans of counsel for the plaintiff made submissions which assumed that there was jurisdiction to make the order sought. In opposing the application before me, he limited his submissions solely to the question whether in the particular circumstances of this case, the discretion should be exercised in the manner sought by the defendant. 9. Jurisdiction cannot, of course, be conferred by agreement or concession. It follows that, notwithstanding the manner in which Mr Evans put his argument, I must be satisfied that the jurisdiction which the defendant seeks to invoke, exists. 10. S.40 of the Supreme Court Act provides in part:
    "(1) Subject to the express provisions of this Act, and
    to the rules of court, and to the express provisions of any
    other Act whenever passed, the costs of and incidental to all
    proceedings in the court, including the administration of
    estates and trusts, shall be in the discretion of the court or
    judge, and the court or judge shall have full power to determine
    by whom and to what extent such costs are to be paid.
    (2) ..." 11. The relevant part of Rule 101.01 provides:
    "(1) Notwithstanding the following provisions of this Rule
    and of the provisions of Rule 101A.01, the costs of any party,
    the amount thereof, the party by whom or the fund or estate, or
    portion of an estate, out of which they are to be paid are in
    the discretion of the Court, and the court may:
    (a) award a lump sum in lieu of, or in addition to, any taxed
    costs;
(b) ..." 12. In Knight v FP Special Assets Ltd (1992) 66 ALJR 560, the High Court by majority held that the jurisdiction of the Supreme Court of Queensland to award costs, conferred by provisions which, as will be seen, are in substantially the same terms as the provisions to which I have just referred, extended to the making of an order for costs against the receivers of various companies which were the unsuccessful parties in proceedings instituted in that Court. Further, the High Court upheld the decision of the Full Court of the Supreme Court of Queensland that, in the circumstances, the jurisdiction was properly exercised when orders were made for costs to be paid personally by the receivers of the companies there in question. 13. In Knight, the High Court considered s.58 of the Supreme Court Act of Queensland, which provides: "The Supreme Court shall have power to award costs in all cases lawfully brought before it and not provided for otherwise than by this section." 14. Order 91 r 1 of the rules made under the Queensland Supreme Court Act relevantly provides: "Subject to the provisions of the Judicature Act and these Rules, the costs of and incident (sic) to all proceedings in the Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge: ..." After a detailed consideration of the history of both of those provisions, Mason CJ and Deane J, with whom Gaudron J agreed, held that the wide discretion conferred by Order 91 left very little work for s.58 to do, and further, permitted an order, in appropriate circumstances, against a non-party. 15. In reaching that conclusion, Mason CJ and Deane J in their joint judgment state (562):
    "According to their natural and ordinary meaning, the
    words of the rule are sufficiently expansive to enable the Court
    to make an order for costs against a person, whether that
    person is formally a party to the proceedings or not. The
    jurisdiction and the discretion thereby conferred are not
    limited. Because they are not limited it is easy to
    postulate a variety of circumstances where an exercise of the
    jurisdiction against a non-party would be extravagant and unjust.
    However, the existence of that possibility provides no
    justification for the imposition by the courts, by way of
    implication, of an arbitrary limitation upon the general
    jurisdiction conferred by the rule. To do so would, as will
    appear, deny power to the Court to order costs against a
    non-party in cases in which, in the interests of justice,
    such orders should be made." 16. And at 565:
    "The conclusion that the wide words of O 91, r 1 should not
    be read down so as to preclude jurisdiction to make an order
    for costs against a non-party does not, of course, mean that a
    judge has an unfettered discretion to make any order that he or
    she chooses. The wide jurisdiction conferred by the rule "must
    be exercised judicially and in accordance with general legal
    principles pertaining to the law of costs", to take up the words
    of Lambert JA in Oasis Hotel Ltd v Zurich Insurance Co (1981)
124 DLR (3d) 455 at 462 ... Obviously, the prima facie general
    principle is that an order for costs is only made against a
    party to the litigation. As our discussion of the earlier
    authorities indicates, there are, however, a variety of
    circumstances in which considerations of justice may, in
    accordance with general principles relating to awards of costs,
    support an order for costs against a non-party." 17. They conclude (566):
    "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 made against the non-party if the
interests of justice require that it be made." 18. It will be seen that the relevant provisions of Order 91 of the Queensland Supreme Court Rules are indistinguishable from the words of s.40(1) of the Supreme Court Act (South Australia), in that they confer a discretion as to costs which is, on the face of it, unfettered. S.40 is, however, expressed to be subject, inter alia, "to the rules of court". 19. Rule 101.01(1), might be thought to confine the exercise of the discretion to parties to the action, having regard to the words "the party by whom" where they appear in the rule. 20. The word "party" is not defined in the Rules. However, pursuant to s.14 of the Acts Interpretation Act, it takes up any meaning it has in the Act. 21. S.5 of the Supreme Court Act defines the word "parties" as follows: "'Parties' includes as well as the plaintiff and defendant in the action any person not originally a party against whom any counterclaim is set up, or who has been served with notice to appear under any of the rules of court: and also every person served with notice of or attending any proceeding, although not named on the record." 22. The definition of the word "parties" applies to the same word expressed in the singular, see s.26 of the Acts Interpretation Act. Two further passages from the judgment of Mason CJ and Deane J in Knight are pertinent to a consideration of the meaning to be attached to the word "party" where it appears in Rule 101. In Knight at 564 they observe:
    "Moreover, the extended concept of "party", including as it
    does a variety of persons on whom notice of proceedings is
    served, makes it inappropriate to introduce a limitation which
    was applied at a time when the concept of "party" related to a
    person on the record of the proceedings. It is preferable to
    interpret the words of the rule according to their natural and
    ordinary meaning as conferring a grant of jurisdiction to order
    costs not limited to parties on the record and ensure that the
jurisdiction is exercised responsibly." 23. At 565, after referring to the judgment of Lord Goff in Aiden Shipping Ltd v Interbulk Ltd (1986) AC 965, they state:
    "In criticising the limitation which the courts below had
    chosen to introduce, namely, that courts should only be free to
    award costs against a person who is a party to proceedings, Lord
    Goff pointed out (1986) AC, at 979) that this was scarcely "an
    apt criterion" upon which to found a limitation on the
    jurisdiction to order costs in view of the extended statutory
    definition of "party" which included a person upon whom notice
    of the proceedings had been served pursuant to the rules or any
    other statutory provision. The same comment may rightly be made
    with respect to the suggested limitation in the present case." 24. The extended definition of the word "parties" in the Supreme Court Act (South Australia), should lead to a similarly expansive construction of the word "party" in rule 101.01(1). In my opinion, the reasoning underlying the decision of the High Court in Knight, is of equal application to the constructions of Rule 101.01(1). 25. It follows that there is jurisdiction to accede to the application of the defendant, if it is otherwise proper to do so. I note, so that it should not be thought that I have overlooked the matter, that the view I expressed to the contrary in Bailey and Ors v Manos Breeder Farms Pty Ltd and Ors (1990) 159 LSJS 256 at 258-9 can no longer be regarded as correct. 26. This is a clear case where the order sought should be made. The case falls within the general category of cases referred to in Knight, as defined in the passage which I have cited (566). Furthermore, it seems to me that the very reasons which prompted the making of the order for security for costs are equally of application to support the making of an order of the kind now sought. 27. Mr Evans contended that the order for security for costs was as far as the Court should go. He drew attention to the passage in the joint judgment of Mason CJ and Deane J in Knight (565): "The availability of an order for security for costs at an earlier stage of the litigation would in many situations be a strong argument for refusing to exercise a discretion to order cost against a non-party, but discretion must be distinguished from jurisdiction." 28. It must be accepted that in an action which goes to trial, if the successful defendant applies for an order against a receiver and manager or liquidator who may be the real party who has brought the action, the failure at an earlier stage of the proceedings to seek an order for security for costs may tell against the application. 29. But the fact that an application was made successfully for an order for security for costs at an early stage of the proceedings, does not, where the order was not complied with and the action is then struck out, count against the making of an order for payment of the costs of action against the real party, in this case, the receiver and manager. If it is otherwise proper to make such an order, the defendant should not be penalised for having had the good sense to bring an application for security for costs at an early stage of the proceedings. 30. The other main argument put by Mr Evans was that, insofar as there might be priority creditors who would be paid out ahead of Westpac in the event that the action, if successful, had increased the assets of the plaintiff, it would be wrong, as he put it: "...as a matter of public policy to deter a receiver in those circumstances from instituting proceedings which, of themselves, would be of benefit to priority creditors, not just to the secured creditor." 31. In my opinion, the attempt by Westpac to suggest that it should not be exposed to a liability for costs because it might be thought to be acting, at least in part, in the public interest or, at least, in the interest of some other creditor or creditors as well, should be rejected. Any suggestion that Westpac was motivated by a desire to benefit others is not in accord with commercial reality. It must be presumed that Westpac's receiver and manager was instructed to bring the present action in the hope or expectation that there was some potential benefit to Westpac. Westpac or its receiver and manager being the real parties behind the action, in accordance with the principles which find expression in Knight (supra), from the outset they ran the risk that costs might be awarded against them. It is nothing to the point that others stood to benefit, incidentally, if the action had been successful. 32. In my opinion, this is a proper case in which the order sought should be made, except for that part of the application as relates to the costs of the counterclaim. The plaintiff has not filed a defence to the counterclaim or, so far as I can see, taken any other step which could have resulted in the defendant incurring any costs with respect to the counterclaim, except for the immediate costs of bringing it. By order of the Master made on 16 July 1992, the costs of the counterclaim were reserved. While the defendant should have its costs of the counterclaim down to the entry of the default judgment on the counterclaim against the plaintiff, there is no reason why that part of the order should be extended to the receiver and manager. The costs of any further proceedings with respect to the counterclaim, namely, with respect to the assessment of damages, will be for the discretion of the trial judge. If the receiver and manager becomes active through the plaintiff in opposing the assessment of damages or otherwise being heard on it, then it will be a matter for the trial judge to determine the incidence of costs. 33. The application also seeks to extend the impact of the order for costs made by me on the disposal of the appeal with respect to security for costs to the receiver and manager as well as to the plaintiff. I see no reason why that should not be done. 34. The order, therefore, on the present application will be that the defendant is to have its costs of action against the plaintiff to be taxed. Such costs, including the costs of the appeal against the refusal of an order for security for costs, but excluding any costs incurred with respect to the counterclaim, are to be payable jointly and severally by the plaintiff and the plaintiff's receiver and manager, William Richard Baker. The defendant's costs of action with respect to the counterclaim to this stage of the proceedings, will be payable by the plaintiff to the defendant to the exclusion of the receiver and manager. The costs of, and the incidence of the costs of any further proceedings on the counterclaim hereafter, will remain in the discretion of the Court, to be dealt with when that discretion is invoked by any further application for costs. 35. I will hear the parties as to the costs of the present application.