Joshua Brook Pty Ltd v Outdoor Centre Holdings Pty Ltd and Anor (No.4)
[2014] FCCA 1325
•27 June 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JOSHUA BROOK PTY LTD v OUTDOOR CENTRE HOLDINGS PTY LTD & ANOR (No.4) | [2014] FCCA 1325 |
| PRACTICE AND PROCEDURE – Unsuccessful applicant in proceedings in administration – whether leave necessary under Corporations Act 2001 (Cth) to proceed with application for costs against non-parties. PRACTICE AND PROCEDURE – Extension of time – application for extension of time in which to apply for costs against non-parties – unsuccessful applicant in proceedings in administration. COSTS – Application for extension of time in which to apply for costs against non-parties – unsuccessful applicant in proceedings in administration. |
| Legislation: District Court Act 1973 (NSW), s.148B |
| Cases cited: RP Austin & AJ Black (Eds), Austin & Black’s Annotations to the Corporations Act (LexisNexis Butterworths) |
| Applicant: | JOSHUA BROOK PTY LTD |
| First Respondent: | OUTDOOR CENTRE HOLDINGS PTY LTD |
| Second Respondent: | PAUL NICHOLLS |
| File Number: | PEG 198 of 2008 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 15 April 2013 |
| Date of Last Submission: | 15 April 2013 |
| Delivered at: | Perth |
| Delivered on: | 27 June 2014 |
REPRESENTATION
| For the Applicant: | No appearance |
| Counsel for the First and Second Respondents: | Mr P Mendelow |
| Solicitors for the First and Second Respondents: | Kott Gunning |
| Counsel for Nicola Harwood: | Ms B Giles |
| Solicitors for Nicola Harwood: | Avon Legal |
| Counsel for James Gary Dunlop: | Ms T McAuley |
| Solicitors for James Gary Dunlop: | Nielsen & Co |
ORDERS
That the respondents’ application in a case filed 7 January 2013 be dismissed.
| FEDERAL CIRCUIT COURT AT PERTH |
PEG 198 of 2008
| JOSHUA BROOK PTY LTD |
Applicant
And
| OUTDOOR CENTRE HOLDINGS PTY LTD |
First Respondent
| PAUL NICHOLLS |
Second Respondent
REASONS FOR JUDGMENT
Application in a Case
This is an application in a case by the respondents, Outdoor Centre Holdings Pty Ltd[1] and Paul Nicholls[2] against two non-parties in these proceedings, James Gary Dunlop[3] and Nicola Harwood.[4] In earlier proceedings in this matter the applicant, Joshua Brook Pty Ltd[5] failed in its claim, and OCH and Mr Nicholls succeeded on a counterclaim for damages in the sum of $40,000 against Joshua Brook.[6]
[1] “OCH”.
[2] “Mr Nicholls”.
[3] “Mr Dunlop”.
[4] “Ms Harwood”. Due to a change in marital status Ms Harwood is referred to as “Ms Brooks” in much of the evidence, but the Court has used “Ms Harwood” throughout these Reasons for Judgment.
[5] “Joshua Brook”.
[6] Joshua Brook Pty Ltd v Outdoor Centre Holdings Pty Ltd & Anor (No. 3) [2012] FMCA 910 (“Joshua Brook (No. 3)”).
The orders sought in the application in a case are as follows:
1.The Respondent have leave to make an application for costs out of time pursuant to Rule 21.02(c).
2.The Respondent have leave to make this application pursuant to section 444E(3)(a) of the Corporations Act 2001 (Cth).
3.The Applicant, Gary James Dunlop and Nicola Harwood pay the Respondents’ costs of these proceedings, including any reserved costs, on an indemnity basis, to be taxed if not agreed.
4.Alternatively to order 3, the Applicant, Gary James Dunlop and Nicola Harwood pay the Respondents’ costs of these proceedings, including any reserved costs, on a party-to-party basis, to be taxed if not agreed.
5.In taxing the costs of the proceedings, the taxing officer shall make reasonable allowance for the work done without regard to the limits imposed by Schedule 1 of the Federal Magistrates Rules.
6.Alternatively to orders 3, 4 and 5 above, the Applicant, Gary James Dunlop and Nicola Harwood pay the Respondents’ costs of these proceedings, fixed in the sum of $300,000.
7.The Applicant, Gary James Dunlop and Nicola Harwood pay the costs of this application to be taxed if not agreed.[7]
[7] “Proposed Orders”.
In relation to Proposed Order 2, OCH and Mr Nicholls indicated at hearing that it was not intended to proceed with the application for leave under s.444(3)(a) of the Corporations Act 2001 (Cth)[8] against Joshua Brook, and it was argued at hearing that OCH and Mr Nicholls did not require leave under s.444E(3)(a) and (c) of the Corporations Act to bring the costs application against Mr Dunlop and Ms Harwood as non-parties. The Court raised an issue as to whether this Court was a court vested with jurisdiction to grant leave, if required.
[8] “Corporations Act”.
Issues
The application in a case therefore potentially gives rise to the following issues to be addressed by the Court:
a)do OCH and Mr Nicholls need leave under s.444E(3)(a) and (c) of the Corporations Act to make the costs application out of time, or at all?
b)can this Court grant leave under s.444E(3)(a) and (c) of the Corporations Act to make the costs application out of time?
c)should OCH and Mr Nicholls have leave to make the costs application out of time?
d)whether, if costs are to be awarded to OCH and Mr Nicholls, those costs ought to be awarded on an indemnity, party-party or fixed sum basis, or the basis prescribed by Schedule 1 of the Federal Circuit Court Rules 2001 Cth);[9] and
e)who should pay the costs of the application in a case?
[9] “FCC Rules”.
Evidence
The following affidavits were filed in support of, and in response to, the application in a case:
a)the affidavit of Mr Nicholls sworn 4 January 2013;[10]
b)the affidavit of Mr Lethbridge[11] sworn 4 January 2013;[12]
c)the supplementary affidavit of Mr Lethbridge sworn 19 February 2013;[13]
d)the affidavit of Ms Harwood sworn 25 February 2013;[14] and
e)the affidavit of Mr Dunlop sworn 5 March 2013.[15]
[10] “Nicholls Affidavit”.
[11] “Mr Lethbridge”.
[12] “Lethbridge Affidavit”.
[13] “Lethbridge Supplementary Affidavit”.
[14] “Harwood Affidavit”.
[15] “Dunlop Affidavit”.
Background facts
The following background facts in relation to this matter are not controversial:
a)on 18 December 2008 Joshua Brook commenced these proceedings against OCH and Mr Nicholls respectively;
b)Mr Dunlop and Ms Harwood were directors of Joshua Brook from the commencement of the proceedings until 8 May 2011, when Mr Dunlop resigned as a director. Mr Dunlop was also secretary of Joshua Brook during the aforementioned period.[16] Ms Harwood remains a director of Joshua Brook.[17] Neither Mr Dunlop nor Ms Harwood were party to the proceedings;
c)in the proceedings Joshua Brook claimed against OCH and Mr Nicholls for misleading and deceptive conduct and breach of contractual warranty relating to the purchase by Joshua Brook of a business. Very broadly, Joshua Brook claimed that an employee/contractor of OCH, being Mr Nicholls’ son, was not disclosed to it prior to purchase of the business and it suffered loss and damage as a result. OCH counterclaimed for breach of a retention of monies clause;
d)the matter was heard on 23-26 November 2010 and 15 December 2010, and judgment was delivered on 19 October 2012, with the claim by Joshua Brook dismissed and a counterclaim by OCH being successful. In respect of the counterclaim $40,000 in damages was awarded against Joshua Brook;[18]
e)neither OCH nor Mr Nicholls moved the Court for an order for costs at the time judgment in Joshua Brook(No. 3) was delivered, and the issue of costs was adjourned;
f)up to the end of the hearing, OCH and Mr Nicholls had paid costs in the sum of $364,643.62 in order to defend the proceedings;[19]
g)Joshua Brook went into voluntary administration on or about 18 January 2012;[20]
h)on or about 16 May 2012 Joshua Brook entered into a deed of company arrangement, to which Mr Dunlop is not a party;[21] and
i)Mr Dunlop remains a current shareholder of Joshua Brook, holding 49% of the shares.[22]
[16] Dunlop Affidavit, para.3 and annexure JGD1; Harwood Affidavit, paras.1 and 7.
[17] Harwood Affidavit, para.1.
[18] Joshua Brook(No. 3) at para.145 per Lucev FM.
[19] Nicholls Affidavit, para.6.
[20] Nicholls Affidavit, para.4 and annexure PN-4; Harwood Affidavit, para.13.
[21] “Deed”. The Deed is at Nicholls Affidavit, annexure PN-6.
[22] Dunlop Affidavit, para.4.
The Deed
The Deed is in relatively standard terms. Ms Harwood is a party to the Deed, Mr Dunlop is not. It is not necessary for present purposes to set out any of the terms of the Deed.
Whether leave to proceed under s.444E(3)(a) and (c) of the Corporations Act is required
Preliminary issue
A preliminary question arose as to whether leave to proceed under s.444E(3)(a) and (c) of the Corporations Act is required by OCH and Mr Nicholls in relation to the application in a case and the foreshadowed application for costs against Mr Dunlop and Ms Harwood
Section 444E of the Corporations Act
Section 444E of the Corporations Act relevantly provides as follows:
(1) Until a deed of company arrangement terminates, this section applies to a person bound by the deed.
(2) …
(3) The person cannot:
(a) begin or proceed with a proceeding against the company or in relation to any of its property; or
(b) …;
except:
(c) with the leave of the Court; and
(d) in accordance with such terms (if any) as the Court imposes.
(4) In subsection (3):
"property" of a company includes:
(a) any PPSA retention of title property of the company; and
(b) any other property used or occupied by, or in the possession of, the company.
It is common ground that s.444E of the Corporations Act prohibits persons bound by a deed of company arrangement (which includes the relevant company, its officers and members, the administrator and creditors) from taking specified actions against a company, or in relation to any of a company’s property, unless leave is granted under s.444E(3)(a) and (c) of the Corporations Act.[23]
[23] RP Austin & AJ Black (Eds), Austin & Black’s Annotations to the Corporations Act (LexisNexis Butterworths), para.5.444E.
OCH and Mr Nicholls’ written submissions
In written submissions filed prior to hearing OCH and Mr Nicholls submitted that leave should be granted under s.444E(3)(a) of the Corporations Act to make an application for costs against Joshua Brook, Mr Dunlop and Ms Harwood.
At hearing, however, with the intention to proceed against Joshua Brook renounced, Counsel for OCH and Mr Nicholls submitted that leave was not required under s.444E(3)(a) and (c) of the Corporations Act to proceed against Mr Dunlop and Ms Harwood because the section sought to protect the company in administration by preventing proceedings against the company in administration so as to protect the assets of that company, here Joshua Brook. The argument was run by analogy in relation to cases under ss.440D and 471B of the Corporations Act.[24]
[24] Citing First Netcom Pty Ltd v Telstra Corporation Ltd [2000] FCA 1542 at para.12 per Emmett J; MG Corrosion Consultants Pty Ltd v Gilmour & Anor (2012) 202 FCR 354 at 356-357 per Barker J; [2012] FCA 383 at paras.5-7 per Barker J; Fortress Credit Corporation (Australia) II Pty Ltd (ACN 114 624 958) v Fletcher & Ors (2011) 281 ALR 38 at 46-47 per Emmett, Nicholas and Robertson JJ; [2011] FCAFC 89 at para.38 per Emmett, Nicholas and Robertson JJ.
Mr Dunlop and Ms Harwood’s written submissions
Mr Dunlop and Ms Harwood’s written submissions did not address this issue, in any substantive way in the case of Mr Dunlop, or at all in the case of Ms Harwood.
Consideration – leave to proceed
The Court accepts the submissions put by OCH and Mr Nicholls with respect to whether leave is required under s.444E(3)(a) and (c) of the Corporations Act to proceed with the application in a case against Mr Dunlop and Ms Harwood, and consequently the non-party costs application against them. No leave is required because the application in a case does not seek to affect or interfere with the property of the company the subject of the deed of company arrangement, in this case, Joshua Brook. Section 444E(3) of the Corporations Act does not prevent a creditor from enforcing rights against third parties, and here does not prevent OCH and Mr Nicholls from seeking to enforce rights against Mr Dunlop and Ms Harwood.[25]
[25] Compare, albeit in respect of s.444D of the Corporations Act, Lehman Brothers Holdings Inc v City of Swan & Ors (2010) 240 CLR 509 at 527 per French CJ, Gummow, Hayne and Kiefel JJ; [2010] HCA 11 at paras.52-53 per French CJ, Gummow, Hayne and Kiefel JJ.
Preliminary question – is the Federal Circuit Court of Australia a “court” for relevant purposes?
Given OCH and Mr Nicholls do not require leave to proceed under s.444E(3)(a) and (c) of the Corporations Act the question whether this Court is a “Court” which can grant leave under s.444E(3)(a) and (c) of the Corporations Act, does not arise and need not therefore be addressed.
Application for leave to make an application for costs out of time
Principles
There is no dispute that r.21.02(1)(b) of the FCC Rules provides that an application for costs must be made within 28 days after the final decree or order is made, but that r.21.02(1)(c) of the FCC Rules confers a power on the Court to extend the 28 day time limit to any further length of time as the Court sees fit. There is no statutory guidance as to the exercise of the discretion, but in extension of time applications the Court generally has regard to the following factors:
a)the extent of the delay;
b)the explanation for the delay;
c)the prejudice the delay would cause to the other party; and
d)the prospect of success of the underlying application.[26]
The extent of the delay
[26] Anderson v Sizer [2011] FMCA 895 at para.25 per Lucev FM (“Anderson”) following the factors recognised by the Federal Court in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-349 per Wilcox J.
OCH and Mr Nicholls’ submissions
OCH and Mr Nicholls were required to make any application for costs by 16 November 2012.[27] The application for costs against Joshua Brook, Mr Dunlop and Ms Harwood was not made until 7 January 2013. OCH and Mr Nicholls submit that whilst this delay was significant it was not substantial, and not a delay of a type likely to cause considerable prejudice to any party, or in the context of this application in a case, any non-party. Further, OCH and Mr Nicholls note the delay is not significant in terms of the time that these proceedings took to reach a conclusion, and that 22 months passed between the hearing and judgment, and that when judgment was delivered, Joshua Brook consented to the issue of costs being adjourned to a date to be fixed upon further application by any party.
[27] FCC Rules, r.21.02(1)(b).
Mr Dunlop’s submissions
Mr Dunlop submits that the delay is approximately seven weeks, or nearly two times the 28 day time limit, which is a substantial and a not inconsiderable delay in the context of that time limit.
Ms Harwood’s submissions
Ms Harwood submits that:
a)the delay in Anderson was four weeks beyond the applicable 21 time limit or “about one and third times beyond the 21 day time limit” which was a “not inconsiderable delay”;[28] and
b)in the current matter the delay is 53 days beyond the applicable 28 day time limit, which represents a delay of almost double the time limit, proportionally higher than the delay in Anderson, and therefore, similarly, involving a not inconsiderable delay.
[28] Anderson at para.26 per Lucev FM.
Consideration of extent of delay
The delay in making this application was 44 days beyond the 28 day time limit.[29] That is a significant delay, 72 days being slightly more than two and one half times the specified, but extendable, limitation period for the making of a costs application after judgment.
[29] The actual time was 52 days, but from 25 December 2012 to 1 January 2013 (inclusive) are excluded because the registry was not open: FCC Rules, r.3.04(4).
In Fischer v Commonwealth of Australia[30] the Federal Court outlined the usual process involved in making an application for costs after judgment had been pronounced or substantive orders made, and observed as follows:
It is a common practice in the Court for short argument concerning costs to be entertained at the time that a judgment is pronounced or substantive orders made. Those who attend at the Court to receive judgments or orders ought, generally speaking, to have sought in advance instructions from their clients on the issue of costs – both on the basis that their client is successful and on the basis that their client is not successful.[31]
[30] (Unreported, Federal Court of Australia, No NG 299 of 1997, Branson J, 26 September 1997) (“Fischer”).
[31] Fischer at pp.2-3 per Branson J.
In Page v Telstra Corporation Ltd[32] the Full Court of the Federal Court, having heard argument concerning Fischer, observed that:
The power to award costs is a wide discretionary power. It must be exercised in order to advance the interests of justice. It is not confined by rules or formulae, and the judgment in Fischer did not suggest an inflexible rule.[33]
[32] [2004] FCAFC 157 (“Page”).
[33] Page at para.7 per Kiefel, RD Nicholson and North JJ.
The adjournment did not entitle OCH and Mr Nicholls to delay with respect to the making of the costs application. There was still a time limit imposed by the FCC Rules, and the fact that the application in a case to extend time has been made acknowledges that fact.
This is not a case of gross delay in making the application for costs, but it remains the case that the delay was nevertheless considerable and significant. The extent and significance of the delay is not to be judged against the time taken to conclude proceedings or deliver judgment. Were it so time limitations would not be the subject of finite prescription by Parliaments in statutes and regulations or courts in their rules. The extent and significance of the delay is to be judged against the prescribed time limit. In those circumstances, and bearing in mind the time limitation imposed by the rule, albeit extendable, and the usual approach with respect to applications for costs, but noting that the interests of justice may require some degree of flexibility, it nevertheless remains the case that the length of the delay in making the application in this case weighs against the granting of the application in a case for an extension of time.
Explanation for delay
OCH and Mr Nicholls’ submissions
The explanation for the delay given by OCH and Mr Nicholls is as follows:
a)comprehensive advice was required to be drafted and settled by Counsel before OCH and Mr Nicholls could reasonably instruct their solicitors to make the application in a case;[34]
b)the decision was made by OCH and Mr Nicholls to confer with Mr Dunlop, Ms Harwood and the administrator of Joshua Brook prior to making the application in a case, despite this meaning that leave would need to be sought to file the application in a case out of time, if an application in a case was still required after conferral, and that this course of action would save costs;[35]
c)there was a delay of approximately two weeks from 6 to 19 December 2012 in preparing the draft affidavit of Mr Nicholls as a result of Mr Lethbridge being “extremely busy…with other legal work and internal administrative matters”;[36] and
d)the solicitors for OCH and Mr Nicholls were unavailable over the Christmas period, as their office was closed from Friday 21 December 2012 and re-opened on Wednesday 2 January 2013.[37]
[34] Lethbridge Supplementary Affidavit, paras.8-14.
[35] Lethbridge Supplementary Affidavit, paras.16-19.
[36] Lethbridge Supplementary Affidavit, para.22.
[37] Lethbridge Supplementary Affidavit, para.23.
Mr Dunlop’s submissions
Mr Dunlop says that although OCH and Mr Nicholls have attempted to explain the delay, the period of delay is substantial in comparison to the time allowed to bring the application. Further, that although reasons for some of the delay were explained by OCH and Mr Nicholls as relating to conferral, that conferral by Mr Dunlop’s solicitors revealed the weakness of any application against Mr Dunlop. In that regard Mr Dunlop referred to a letter from his solicitors to the solicitors for OCH and Mr Nicholls dated 22 November 2012.[38] The 22 November 2012 Letter was a response to a letter from the solicitors for OCH and Mr Nicholls dated 15 November 2012.[39] The 15 November 2012 Letter to Mr Dunlop, whilst putting Mr Dunlop on notice of a possible application against him for costs, also sought information from Mr Dunlop, including as to who paid for Joshua Brook’s legal fees.
[38] Nicholls Affidavit, annexure PN-11 (“22 November 2012 Letter”).
[39] Nicholls Affidavit, annexure PN-10 (“15 November 2012 Letter to Dunlop”). A like letter was sent by OCH and Mr Nicholls to Ms Harwood (“15 November 2012 Letter to Harwood”): Nicholls Affidavit, annexure PN-9.
Ms Harwood’s submissions
Ms Harwood notes that the Nicholls’ Affidavit contains no explanation at all for the delay in making the application in a case, and that OCH and Mr Nicholls did not attempt to provide any explanation for the delay until the filing of the Lethbridge Supplementary Affidavit, which Ms Harwood submits does not provide an adequate reason for the failure of OCH and Mr Nicholls to make the application in a case within the required time limit.
Dealing with each of the asserted explanations for the delay, Ms Harwood says as follows:
a)that OCH and Mr Nicholls raised the issue of a costs application with their solicitors immediately after judgment was handed down on 19 October 2012 and immediately requested comprehensive advice after receiving preliminary advice on 25 October 2012. That comprehensive advice took almost three weeks to provide, which took OCH and Mr Nicholls to two days before the application in a case was due to be filed;[40] and
b)rather than deciding to make the application in a case within time, OCH and Mr Nicholls instructed their solicitors to send correspondence only;[41]
c)in relation to conferral prior to making the application in a case:
i)conferral did not in fact occur until one day before the expiration of the time limit,[42] and in those circumstances it cannot reasonably be said that OCH and Mr Nicholls expected an outcome from that conferral before the time limit expired;
ii)conferral would have been possible subsequent to the filing of an application in a case with the ability to discontinue if necessary, and in this regard Ms Harwood rejects the assertion that it would not have been possible to prepare and file the application and also confer in any significant way with the administrator of Joshua Brook, Mr Dunlop and Ms Harwood;[43] and
iii)conferral would have been possible prior to the provision of comprehensive advice, and that it would have been possible to seek an answer to the question posed in the 15 November 2012 Letter to Ms Harwood as to who was responsible for paying Joshua Brook’s legal fees in the course of the proceedings, long before that letter was sent; and
d)she should not be held responsible or suffer prejudice because of the work commitments of the solicitors for OCH and Mr Nicholls which allegedly delayed the preparation of the application in a case.
[40] Lethbridge Supplementary Affidavit, paras.6-12.
[41] Lethbridge Supplementary Affidavit, paras.14-15.
[42] Lethbridge Supplementary Affidavit, para.15; Harwood Affidavit, para.15.
[43] Lethbridge Supplementary Affidavit, para.16.
Consideration of explanation for delay
It is not apparent to the Court why there was a need for “comprehensive advice” prior to the filing of the application in a case. It is apparent that OCH and Mr Nicholls had “preliminary advice”. It is unclear as to why that preliminary advice could not have been acted upon, and if at variance with the comprehensive advice subsequently received, why any steps taken in reliance upon the preliminary advice could not be withdrawn or varied, or any application for costs against Mr Dunlop and Ms Harwood then made could not have been withdrawn or varied as the case may be. The decision to delay by OCH and Mr Nicholls, and to wait for comprehensive advice, needed to be tempered by the fact that there was a specified time limit under r.21.02(1)(b) of the FCC Rules. The course of action adopted was manifestly a risky one, especially when the quantum of costs expended by OCH and Mr Nicholls ($364,643.62) is considered.
The fact that OCH and Mr Nicholls sought to confer is, of itself, commendable. In this case, however, the conferral simply came too late. The 15 November 2012 letter was sent one day before the expiration of the 28 day time limit for filing the application for costs. Given the amount of costs in issue, and given that OCH and Mr Nicholls had preliminary advice, it is not apparent why they could not have acted to confer earlier than a day before the time limit was due to expire, even if only to flag their “intention” to make an application for costs against Mr Dunlop and Ms Harwood.[44] It is also not necessarily apparent why an application for costs could not have been filed, and conferral taken place thereafter. That would have left open the options of then varying or withdrawing a costs application with minimal, or possibly even no costs, if the comprehensive advice was not supportive of the application made, or if it was, it could have allowed for conferral following the filing of the application with a view to avoiding a hearing or narrowing the issues. OCH and Mr Nicholls could have acted on the preliminary advice and advised Mr Dunlop and Ms Harwood that they were considering making the application for non-party costs within a matter of days of judgment being handed down, rather than waiting to initiate the conferral process just one day before the time limitation expired.
[44] Vestris & Anor v Cashman & Anor (1998) 72 SASR 449 at 458 per Olsson J (with whom Doyle CJ agreed) (“Vestris”): Common fairness dictates that a defendant seeking to place a non-party at risk of an order for costs must, either by bringing a timely application for security, or, alternatively, at least by letter advising the defendant’s intention, place the non-party on notice of that risk…”.
In circumstances where the conferral took place but one day before the time limit for making an application for costs expired the point made by Ms Harwood that OCH and Mr Nicholls cannot reasonably have expected an outcome from that process, at least within sufficient time to allow the filing of the application for costs within time, is one properly, and forcefully made, and one with which the Court agrees.
In any event, upon receipt of the advice from the solicitors for Mr Dunlop on 22 November 2012 and Ms Harwood on 26 November 2012,[45] it would have been apparent to OCH and Mr Nicholls that the process of conferral was not likely to achieve the outcome desired by them, and given that by that stage, both the comprehensive advice had been received and the time limit had expired, more urgency in filing the application, which was by that time already out of time, might have been expected from the solicitors for OCH and Mr Nicholls. Given the quantum of costs involved and the risks inherent in applying out of time OCH and Mr Nicholls might have been expected to make the application much sooner than they did.
[45] Nicholls Affidavit, annexures PN-11 and PN-12.
In relation to the delay in the preparation of Mr Nicholls’ draft affidavit, a delay of some two weeks in preparing that draft affidavit would still have meant that the application for costs would have been out of time, albeit by 30 days rather than 44 days. The Court is in no position to judge the substance of the suggestion that Mr Lethbridge had demanding pre-existing commitments and internal administrative matters because the Court is given no indication as to what they were or might have been, either specifically or in a sufficiently generic sense. The internal administrative matters must have been of considerable importance if they warranted running risks with a time limitation in relation to a client’s costs claim of the quantum in issue in these proceedings. Furthermore, it is not apparent why Mr Lethbridge’s demanding pre-existing commitments should have delayed Mr Nicholls from preparing a draft affidavit, and why it is that another solicitor in the firm of solicitors acting for OCH and Mr Nicholls could not have undertaken, or substantially undertaken under supervision, the task of the preparation of Mr Nicholls’ Affidavit. In that regard it is relevant to note that each of a letter from OCH and Mr Nicholls’ solicitors to:
a)the administrator of Joshua Brook, dated 14 November 2012 concerning the intention of OCH and Mr Nicholls to claim costs from Mr Dunlop and Ms Harwood, and sent, curiously, before the 15 November 2012 Letters to Mr Dunlop and Ms Harwood;[46]
b)Ms Harwood, being the 15 November 2012 Letter to Ms Harwood;
c)Mr Dunlop, being the 15 November 2012 Letter to Mr Dunlop; and
d)Mr Dunlop’s solicitors, dated 28 November 2012,[47]
all name the writer as “Lisa Wolyniec” and provide her email address, in addition to Mr Lethbridge and his email address. It would thus appear that there were in fact two solicitors working on the matter at this time, and there is no explanation as to why Ms Wolyniec could not have taken carriage of the matter, either alone or under Mr Lethbridge’s supervision.
[46] Nicholls Affidavit, annexure PN-8.
[47] Nicholls Affidavit, annexure PN-13.
The unavailability of the solicitors for OCH and Mr Nicholls over the Christmas period is understandable, insofar as the office was closed for Christmas. In any event, even if the application in a case had been filed immediately before Christmas, it would still have been out of time, and the subject of not inconsiderable delay.[48]
[48] Anderson at para.26 per Lucev FM.
In all of the above circumstances, the Court is not persuaded that there is an adequate explanation for delay by OCH and Mr Nicholls.
Prejudice
OCH and Mr Nicholls’s submissions
OCH and Mr Nicholls submit that there has been no evidence led by Mr Dunlop or Ms Harwood as to any specific prejudice to be suffered as a result of the delay, other than the need to defend the costs application.[49]
[49] Harwood Affidavit, para.19.
Mr Dunlop’s submissions
Mr Dunlop submits that he suffers prejudice by reason of:
a)not having been a director of Joshua Brook since 8 May 2011, which results in his continuing to suffer prejudice in any delays in bringing an application against him as the more time that passes means that he is less likely to be able to access the records of Joshua Brook that he no longer has, in any efficient or timely way;[50] and
b)that if the application for leave is granted he loses the security of knowing the time for filing the application was past and that the application could not then have been brought against him.
[50] Dunlop Affidavit, paras.5 and 6.
Ms Harwood’s submissions
Ms Harwood submits that she will be exposed to risk if OCH and Mr Nicholls are granted leave to make the application for costs out of time, and that, in particular, she will have to incur legal costs to defend her position, and may be at risk of a significant adverse costs order. Ms Harwood submits that she was conducting her affairs without any knowledge of the potential for the application for costs, in circumstances where:
a)Joshua Brook entered voluntary administration on 18 January 2012, and at that point, the potential inability to obtain costs from Joshua Brook arose;
b)judgment was given on 19 October 2012; and
c)OCH and Mr Nicholls raised, for the first time, the possibility of an application for costs with Ms Harwood on 15 November 2012.[51]
[51] Harwood Affidavit, para.15.
Ms Harwood further submits that:
a)OCH and Mr Nicholls should have notified her as soon as Joshua Brook entered into administration of the potential for them to make a costs application against her. The delay in this regard is at worst, approximately ten months, and, at best, four weeks, which has put Ms Harwood at risk. Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No.10)[52] is cited as authority for the proposition that whether a non-party has been warned about an application for non-party costs is a relevant consideration;[53]
b)Brisbane South Regional Health Authority v Taylor[54] is authority for the following rationales for limitation periods:
i)that delay deteriorates the whole quality of justice and sometimes such deterioration may exist without anybody realising;
ii)it is a right of the citizen and in the public interest to resolve disputes quickly;
iii)it is oppressive to a defendant to allow an action to be brought after circumstances have passed; and
iv)people should be able to arrange their affairs and make the most productive use of their resources without disruption and on the basis that claims can no longer be made against them,[55]
and that if leave were to be granted to make the costs application out of time then she would no longer be afforded the protection that the above rationales are designed for. In any event, it is said that the current circumstances do not warrant a departure from the principles of limitation periods so outlined.
[52] [2009] FCA 498 (“Citrus Queensland (No. 10)”).
[53] Citrus Queensland(No. 10) at para.20 per Collier J.
[54] (1996) 186 CLR 541 (“Brisbane South Regional Health Authority”).
[55] Brisbane South Regional Health Authority at 551-553 per McHugh J.
Consideration - prejudice
It is fair to observe that to allow an application out of time for costs, in this case against non-parties, would offend the general rationale for, and protections established by, the limitation period in r.21.02(1)(b) of the FCC Rules. Both Mr Dunlop and Ms Harwood would in the Court’s view be prejudiced by having to defend, and incur costs in defending, a costs application for proceedings that they were not party to, and in respect of which the limitation period had expired, and about which they had no expectation of being joined, with respect to costs or otherwise, until a day before the expiration of the time limit for costs applications. Moreover, there is prejudice because there is the probability that both Mr Dunlop and Ms Harwood will incur expenses in defending any proceedings if leave is granted, and there is a possibility that they may also have to pay costs if leave is granted and OCH and Mr Nicholls are successful in their costs application, all in circumstances where they were non-parties to litigation, and unaware of any possibility of personal liability until the day before the time limit expired. What happened once they became aware of that “possibility”? OCH and Mr Nicholls did not make the application within time, but there was further delay before the application was made. In those circumstances, both Mr Dunlop and Ms Harwood were entitled to consider that no such application for costs would be made, and that the relevant limitation period had served its purpose, not only in respect of the parties to the proceedings, but also in respect of their position as non-parties to the proceedings.
Prospects of success of the underlying application
Application of the discretionary guidelines for costs against non-parties to this case
In Knight & Anor v FP Special Assets Limited & Ors[56] the High Court of Australia set out the general guidelines as to the exercise of a court’s discretion to make orders against a non-party, particularly with respect to costs. Those guidelines have been utilised in a number of subsequent cases.[57]
[56] (1992) 174 CLR 178 (“Knight”).
[57] Including, for example, in the Federal Court, Gore & Ors (Trading as Clayton Utz) v Justice Corporation Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83 (“Gore”); Citrus Queensland (No. 10); Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2003] FCA 574 (“Arktos”).
There was therefore no dispute between the parties as to the discretionary guidelines to be addressed which were as follows:
a)whether the party to the litigation is “insolvent or a man of straw”;
b)whether the non-parties were involved in the management of the litigation or played an active part in the litigation;
c)whether the third parties stood to gain financially from the outcome of the proceedings or had an interest in the outcome;
d)whether the non-parties should have been joined as a party to the action;
e)whether a security for costs application should have been made; and
f)whether there are other factors relevant to the interests of justice in favour of making a costs order against the non-parties.
Each of these factors is considered below having regard to the submissions made by each of OCH and Mr Nicholls, Mr Dunlop and Ms Harwood.
Whether the party to the litigation is insolvent
OCH and Mr Nicholls’ submissions
OCH and Mr Nicholls submit that although Mr Dunlop maintained that Joshua Brook was solvent and could obtain any additional funding from Ms Harwood to meet any costs order,[58] the true position was that:
a)Joshua Brook borrowed the entirety of the purchase price of the business;[59]
b)as at 22 October 2010, being one month before the hearing commenced, the loan for the purchase price does not appear to have been reduced;[60] and
c)as at 7 February 2011, less than two months after the hearing concluded, Mr Dunlop told Ms Brooks that cash flow remained critical, and that he had re-negotiated Joshua Brook’s position with the Australian Tax Office that day, but that there was no more leeway with them,[61] and that this indicated serious long-term financial problems.
[58] Dunlop Affidavit, annexure JGD5.
[59] Dunlop Affidavit, annexure JGD5.
[60] Dunlop Affidavit, annexure JGD6.
[61] Dunlop Affidavit, annexure JGD3.
Thus, OCH and Mr Nicholls submit that the true position is that the purchase of the business by Joshua Brook was fully financed, that it remained fully financed, and that the only way Joshua Brook could ever have paid a costs order was if Ms Harwood chose to pay additional funds into Joshua Brook to allow it to do so, and that it was on that basis that Mr Dunlop and Ms Harwood commenced and continued the proceedings, through Joshua Brook, and without bringing into play their own assets.
The financial position of Joshua Brook is dealt with in Mr Nicholls’ Affidavit from which it can be said that:
a)at a creditors meeting on 24 April 2012 a resolution was passed executing a deed of company arrangement which resulted in no funds being available for contingent unsecured creditors;[62]
b)the administrators estimated realisable value is a deficit of $2,445,297;
c)the administrator has valued the goodwill of Joshua Brook at a nil realisable value;
d)there may be an arguable claim that Joshua Brook was trading whilst insolvent from 31 December 2010;
e)the estimated dividend to unsecured creditors of Joshua Brook is, at best, 6 cents in the dollar;[63] and
f)the admitted debts of Joshua Brook total $391,794.48, and the unsecured creditors’ debts (excluding a debt which Ms Harwood is not going to claim) are $1,323,170.11. Following payment of the administrator’s fees, a total of $140,000 will be made available to divide among unsecured creditors.[64]
[62] Nicholls Affidavit, para.14 and annexure PE-6.
[63] Nicholls Affidavit, para.11 and annexure PN-4 (“Administrator’s 13 February 2012 Report”).
[64] Nicholls Affidavit, paras.16-17.
OCH and Mr Nicholls submit that Joshua Brook is insolvent, and that only a very small proportion of any costs order made against Joshua Brook is likely to be recovered.
Mr Dunlop’s submissions
Mr Dunlop submits that Joshua Brook is in voluntary administration, and has been since 18 January 2012, and is currently insolvent.
Ms Harwood’s submissions
Ms Harwood agrees that Joshua Brook is insolvent, but reiterates that OCH and Mr Nicholls did not act either at the time of Joshua Brook entering voluntary administration on 18 January 2012, or immediately after judgment was given on 19 October 2012, to raise the issue of the potential for the application in a case to be made, and that she is thereby prejudiced.
Whether the third parties were involved in the management of the litigation or played an active part in the litigation
OCH and Mr Nicholls’ submissions
OCH and Mr Nicholls submit that:
a)both Mr Dunlop and Ms Harwood played substantial roles in the conduct of the proceedings;
b)there is a conflict between the evidence of the involvement of Mr Dunlop and Ms Harwood in the conduct of the proceedings;
c)Mr Dunlop’s evidence is that:
i)Ms Harwood and he gave joint instructions and made joint decisions for all matters relating to the litigation;[65] and
[65] Dunlop Affidavit, para.10.
ii)Ms Harwood and he together made decisions including the decision to initiate the proceedings, and to reject or ignore settlement offers, and to proceed to trial;[66]
[66] Dunlop Affidavit, para.13.
d)Ms Harwood’s evidence is that:
i)she did not play an active part in the proceedings;[67]
ii)she did not manage the proceedings or Joshua Brook’s conduct in the proceedings;[68]
e)Mr Dunlop’s evidence in this respect should be preferred for the following reasons:
i)it seems incredible that Ms Harwood, having invested $2.6m in Joshua Brook through Stewart Corporate of which she is the majority shareholder, would have no knowledge or active involvement in significant legal proceedings;
ii)it is not explained why, if Ms Harwood’s involvement in the proceedings was a limited as she alleged, she attended at the trial for three of the five days;
iii)Mr Dunlop emailed Ms Harwood on 22 October 2010 making reference to “the November action against … [OCH]”;[69] and
iv)Mr Dunlop’s evidence in this respect is far more detailed than that of Ms Harwood. Ms Harwood’s assertion that she “only knew about the Proceedings because Mr Dunlop told me about them over the telephone. I cannot recall the date of this conversation or the specific details of this conversation” is so vague as to be virtually meaningless.[70]
[67] Harwood Affidavit, para.21.
[68] Harwood Affidavit, para.23.
[69] Dunlop Affidavit, annexure JGD6 at page 32.
[70] Harwood Affidavit, para.9.
OCH and Mr Nicholls also submit that:
a)Ms Harwood was, in effect, paying the legal fees of Joshua Brook to pursue the proceeding;
b)the purchase of the businesses by Joshua Brook was fully funded by Stewart Corporate,[71] and Ms Harwood paid $725,000 to Joshua Brook in May 2011,[72] and as at 18 January 2012 Stewart Corporate was owed the sum of $1,107,750 by Joshua Brook;[73] and
c)whilst Joshua Brook paid its legal fees for the proceedings,[74] all of Joshua Brook’s funding was provided by Stewart Corporate or by Ms Harwood personally, and in substance, Ms Harwood was paying the legal fees.
[71] Dunlop Affidavit, annexure JGD5 at page 22.
[72] Dunlop Affidavit, para.18.
[73] Nicholls Affidavit, para.11(c).
[74] Dunlop Affidavit, para.29; Harwood Affidavit, para.24.
Mr Dunlop’s submissions
Mr Dunlop submits that his role was solely that of a director of Joshua Brook, and that of itself, does not make him liable for the costs of OCH and Mr Nicholls.
Mr Dunlop says that his role as a director was an active one in relation to the proceedings, but that:
a)Ms Harwood and Mr Dunlop, acting as Joshua Brook, gave instructions in relation to the proceedings at all stages and made joint decisions regarding the litigation, including the decisions to:
i)commence proceedings;
ii)give instructions throughout the proceedings;
iii)reject settlement proposals that were put forward; and
iv)make decisions in relation to the hearing itself; and
b)he gave evidence at trial on behalf of Joshua Brook.
The decisions made by Mr Dunlop were made jointly with Ms Harwood, as directors of Joshua Brook, and not by Mr Dunlop in his personal capacity.
Mr Dunlop submits that there was no improper conduct on his part throughout the duration of the proceedings, and that the delay in preparing tax returns for lodgment referred to in an email attached to the Dunlop Affidavit does not demonstrate any refusal, deliberate or otherwise, to take possession of financial statements, or any other improper conduct.[75]
[75] Dunlop Affidavit, annexure JGD6 at page 32.
Mr Dunlop also submits that:
a)because he was not the sole director and shareholder of Joshua Brook he cannot be said to be the directing mind of Joshua Brook. In any event, all decisions made by Joshua Brook were made by its two directors and shareholders Mr Dunlop and Ms Harwood jointly;[76]
b)in determining whether Mr Dunlop had an important connection with the proceedings the Court must have regard to the ordinary principles applied in awarding costs against non-party directors. Ordinarily, an order for the payment of costs will not be made against a director of an insolvent company merely because the director caused the company to defend proceedings brought against it whilst knowing, or suspecting, that the company may not be able to meet an order for costs;[77]
c)the decision to commence proceedings was made by Joshua Brook as a separate entity, jointly by its then directors, Mr Dunlop and Ms Harwood, and at the time proceedings were commenced, and continued, there was no reason to believe Joshua Brook was insolvent, nor did Mr Dunlop believe Joshua Brook to be insolvent;[78]
d)the action was managed and maintained by Mr Dunlop, jointly with Ms Harwood, upon advice from Joshua Brook’s solicitors;[79]
e)Mr Dunlop did not finance the action and Joshua Brook paid its own legal fees;[80] and
f)there is no evidence that Mr Dunlop caused, maintained or managed the proceedings other than in his capacity as a director of Joshua Brook. This does not make him liable for the costs of OCH and Mr Nicholls.
[76] Dunlop Affidavit, paras.9-15.
[77] Citing Arktos at para.17 per Lee J; Citrus Queensland (No. 10) at para.20 per Collier J; Carborundum Abrasives Ltd v Bank of New Zealand (No. 2) [1992] 3 NZLR 757 at 764-765 per Tompkins J; Pope v DRP Nominees Pty Ltd (No. 2) [2000] SASC 65 at paras.64-65 per Olsson J.
[78] Dunlop Affidavit, paras.16-22.
[79] Dunlop Affidavit, paras.9-15.
[80] Dunlop Affidavit, para.29.
Ms Harwood’s submissions
Ms Harwood submits that:
a)OCH and Mr Nicholls have argued that Mr Dunlop’s evidence should be preferred over hers because, effectively, Mr Dunlop provides more detailed information. Ms Harwood says that her evidence lacks detail because she does not have the information within her personal knowledge by reason of the fact that she did not manage or play an active role in the litigation;
b)she maintains that Mr Dunlop conducted the proceedings and that she had little involvement in them; and
c)she has not expressly denied Mr Dunlop’s evidence because the Dunlop Affidavit was filed late, on 4 March 2013, whereas the Harwood Affidavit was filed on 26 February 2013.
The evidence
Given the submissions made, it is appropriate to set out some of the evidence in more detail.
Mr Nicholls gives evidence of a conversation with Mr Dunlop in mid-April 2008 in which Mr Dunlop indicates that he has to “clear all major decisions through … [Ms Harwood] as she controls the business.”[81]
[81] Nicholls Affidavit, para.25.
Mr Dunlop’s evidence is that:
a)he was responsible for the day-to-day management of Joshua Brook, however, all major decisions were made jointly with Ms Harwood, and that although they were joint directors, it was the usual practice for Ms Harwood to have the overriding decision in relation to significant matters as a consequence of Ms Harwood’s majority shareholding (51%) in Joshua Brook, and because she was a significant financier of Joshua Brook;[82]
b)all decisions and instructions relating to the proceedings were made jointly in consultation with Ms Harwood and were made by Joshua Brook, and not by Mr Dunlop personally;[83]
c)none of the decisions in relation to the proceedings were minuted;[84]
d)he met with Ms Harwood, initially fortnightly, and then approximately weekly, to inform her of and consult with her about Joshua Brook;[85]
e)attached to the Dunlop Affidavit are sample briefing notes and responses to queries provided to Ms Harwood by Mr Dunlop;[86]
f)Ms Harwood and Mr Dunlop, as directors of Joshua Brook, and upon advice from their then solicitors, authorised the commencement of proceedings against OCH and Mr Nicholls, and whilst Mr Dunlop attended to the day-to-day management of these proceedings, both Ms Harwood and Mr Dunlop attended meetings with the solicitors in relation to major decisions made regarding the proceedings including the decision to initiate the proceedings, decisions to reject or ignore settlement offers made, and prior to hearing, the specific decision to proceed to hearing;[87] and
g)Mr Dunlop no longer has access to the various correspondence and emails concerning the litigation that passed between Joshua Brook’s then solicitors, Ms Harwood and himself relating to the proceedings.[88]
[82] Dunlop Affidavit, para.9.
[83] Dunlop Affidavit, para.10.
[84] Dunlop Affidavit, para.10.
[85] Dunlop Affidavit, para.11.
[86] Dunlop Affidavit, annexures JGD3 and JGD4.
[87] Dunlop Affidavit, para.13.
[88] Dunlop Affidavit, para.15.
Mr Dunlop also notes that Ms Harwood was present for three of the five days of the hearing.[89] Mr Dunlop was present throughout the duration of the hearing, save for the morning of the final day of the hearing.[90]
[89] Dunlop Affidavit, para.26.
[90] Dunlop Affidavit, para.25.
Ms Harwood’s evidence is as follows:
20.I did not cause the Proceedings to be commenced.
21.I did not play an active part in the Proceedings. Rather, to my knowledge, all correspondence was between Mackinlays Solicitors and Mr Dunlop.
22.I was not a witness in the trial of the Proceedings.
23.I did not manage the Proceedings or the Applicant’s conduct in the proceedings.[91]
[91] Harwood Affidavit, paras.20-23.
Ms Harwood also says that:
8.Several months after the sale of business, which occurred around March 2008, Mr Dunlop instructed Mackinlays Solicitors on behalf of Joshua Brook … to commence the Proceedings against …[OCH and Mr Nicholls].
9.I only knew about the Proceedings because Mr Dunlop told me about them over the telephone. I cannot recall the date of this conversation or the specific details of this conversation.
10.The Proceedings progressed to trial which was held from 23 November 2010 to 26 November 2010 and also on 15 December 2010. I only attended the trial for a few hours on the 23 November 2010, 24 November 2010 and 15 December 2010.
11.I did not provide any instructions in relation to the Proceedings or the trial of the Proceedings.[92]
Whether the third parties stood to gain financially from the outcome of the proceedings or had an interest in the outcome
[92] Harwood Affidavit, paras.8-11.
OCH and Mr Nicholls’ submissions
OCH and Mr Nicholls say that it is self-evidently absurd that Mr Dunlop and Ms Harwood contend that there was no financial benefit to them in relation to the outcome of the proceedings. This is said because:
a)Stewart Corporate is a 51% shareholder of Joshua Brook, and Ms Harwood is a 100% shareholder of Stewart Corporate;
b)Mr Dunlop is a 49% shareholder of Joshua Brook;
c)Mr Dunlop says that any damages recovered would be applied to reduce the debt owed by Joshua Brook to Stewart Corporate, and assuming this to be true, Ms Harwood would clearly obtain a financial benefit from succeeding in the proceedings;[93] and
d)because Mr Dunlop says that the first $400,000 profit will be paid as management fees to Stewart Corporate, and that the balance of profits would be divided between the respective shareholdings of Stewart Corporate and Mr Dunlop, a significant damages payment would increase the profit and therefore result in a greater division of profit to Mr Dunlop.[94]
[93] Dunlop Affidavit, para.30.
[94] Dunlop Affidavit, annexure JGD5.
Mr Dunlop’s submissions
Mr Dunlop submits that he was a director of Joshua Brook with no personal interest in the subject matter of the litigation and that his minority shareholding did not give him any financial interest in the litigation. Mr Dunlop says that he did not seek to benefit personally from the litigation and that the benefit to Joshua Brook if successful would have been an award of a judgment sum and costs payable. In this regard he says that any amounts awarded to Joshua Brook as a result of the litigation, after payment of costs, would have been applied to reduce Joshua Brook’s debt. Therefore, there would be no surplus from which a dividend could be paid. As a director and shareholder he would not benefit, even if the litigation had been successful.[95]
[95] Dunlop Affidavit, para.30.
Mr Dunlop reiterates that Joshua Brook made decisions in relation to the proceedings by the joint decisions of its directors, and in conjunction with their legal advisers, and as such Mr Dunlop did not cause Joshua Brook to bring proceedings for Mr Dunlop’s financial benefit.
Mr Dunlop also says that s.245T(1) of the Corporations Act sets out a procedure to be adopted when paying dividends to shareholders. Based on that procedure, Joshua Brook would never have been able to pay dividends to Mr Dunlop because of the debt to Stewart Corporate, as well as any prejudice to Joshua Brook’s ability to pay creditors.[96]
[96] Dunlop Affidavit, para.30.
Mr Dunlop also notes that he resigned as a director of Joshua Brook on 8 May 2011, and says that, so far as he was aware, Joshua Brook was solvent during the proceedings and at least up until his resignation as a director.[97]
[97] Dunlop Affidavit, paras.16-22.
In all of the above circumstances he contends that there is no basis on which he stood to gain financially from the outcome of the proceedings or had an interest in the outcome.
Ms Harwood’s submissions
Ms Harwood submits that the debt owing by Joshua Brook to Ms Harwood gave rise to a financial interest in Joshua Brook, rather than a personal financial interest in the proceedings, and that any benefit to Ms Harwood arises from her status as a creditor, and not by virtue of any action she took in the proceedings.
Whether the non-parties should have been joined as parties to the action
There appears to be no dispute that the OCH counterclaim was for the payment of money by Joshua Brook, and did not relate to Mr Dunlop or Ms Harwood personally, and therefore there was no cause of action against Mr Dunlop or Ms Harwood. Mr Dunlop says that he did not personally have a cause of action against OCH or Mr Nicholls in the proceedings. Aside from reiterating that Ms Harwood was not warned at an early stage of the possibility of proceedings for costs being brought against her, Ms Harwood made no submissions on this point.
Whether a security for costs application should have been made
OCH and Mr Nicholls’ submissions
OCH and Mr Nicholls submit that:
a)the failure to make application for security for costs during the course of the proceedings is a matter to be taken into account but, if it is otherwise just that such an order be made, the absence of an application for security for costs is not a bar to making that order;[98]
b)the failure to notify Mr Dunlop and Ms Harwood that an application may be made to recover costs from them personally would not be a reason to deny the order sought unless by reason of that default it would be unjust to make that order;[99] and
c)there was no reason for OCH and Mr Nicholls, or their solicitors, to believe that Joshua Brook would be unable to pay any costs order that was made against it.
[98] Citing Arktos at para.9 per Lee J.
[99] Citing Arktos at para.11 per Lee J.
Mr Nicholls deposes to the fact that:
a)the 2009 financial statements provided in the course of the proceedings showed a net loss of $439,836.63 by Joshua Brook, but also showed a very significant gross trading profit since 2008, up from $778,949.73 to $2,053,243.68, as well as equity of $2,117,021.96 with an amount of cash on deposit of $809,367.21;
b)he was aware that the businesses were, or should have been, profitable (having run them for 18 years until February 2008), and whilst he had reason to believe that Mr Dunlop was not running the businesses as effectively as Mr Nicholls did, there was no reason to believe that they would not be able to make significant profit once Mr Dunlop settled into the role;
c)he had no reason to believe that the equity was anything other than as stated in the financial statements, and that the goodwill was very substantial when he was running the businesses, and that a value in excess of $2,000,000 for that goodwill would not have been excessive;
d)he was comfortable with the cash on deposit and the backing of Ms Harwood, evident by a loan of $500,000 to Joshua Brook; and
e)in the above circumstances, he did not have reason to consider making an application for security for costs, nor was there any evidence upon which such an application could have been made.[100]
[100] Nicholls Affidavit, paras.29-32.
Further, OCH and Mr Nicholls submitted that:
a)no evidence is led by either Mr Dunlop or Ms Harwood to suggest that OCH and Mr Nicholls should have known that Joshua Brook was insolvent prior to the hearing;
b)Mr Dunlop’s evidence was that Joshua Brook was solvent at the time of the hearing; and
c)OCH and Mr Nicholls had no reason to notify Mr Dunlop or Ms Harwood that an application was to be made personally against them for payment of costs, because OCH and Mr Nicholls had no reason to believe that Joshua Brook would not able to satisfy any costs order.
OCH and Mr Nicholls therefore submitted that there was no evidence of Joshua Brook being unable to pay any costs order that might be made against it, and that any application for security for costs would have been inappropriate, and had it been made, would have failed.
Mr Dunlop’s submissions
Mr Dunlop submits that:
a)OCH and Mr Nicholls and their solicitors could and should have considered an application for security for costs, and at least, the solicitors should have advised on making the application. There is no evidence a security for costs application was given any consideration by OCH and Mr Nicholls other than the self-serving statement of Mr Nicholls that there was no reason to consider making the application for security for costs nor any evidence upon which it could have been made; and
b)OCH and Mr Nicholls made no effort to protect themselves in the event that Joshua Brook was unable to pay a costs order because there was no evidence that an application for security for cost was even considered, and that this is something that the Court should take into consideration in deciding whether to grant leave to apply for costs against Mr Dunlop.
Ms Harwood’s submissions
Ms Harwood made no submissions on this point.
Other factors relevant to the interests of justice being in favour of a costs order against Mr Dunlop and Ms Harwood
OCH and Mr Nicholls’ submissions
Matters associated with the proceedings
In relation to the position of OCH and Mr Nicholls they submit that:
a)they have spent $364,643.62 in legal and expert fees in defending the proceedings, and that the claim was a substantial claim at the highest limit of the jurisdiction of the Court;[101]
b)in order to pay the legal and expert fees, Mr Nicholls mortgaged a property which he is now forced to sell, in circumstances where he is 66 years old with limited employment opportunities;[102]
c)if orders for costs are not made against Mr Dunlop or Ms Harwood it appears that OCH and Mr Nicholls will recover little, if any, of their costs;[103] and
d)offers of settlement were made by OCH and Mr Nicholls on 12 January 2009 and 18 October 2010, both of which were rejected. OCH, through Mr Nicholls, did all that it reasonably could to avert the consequence of Joshua Brook’s ill-conceived litigation. The decision to reject the offers was made by Mr Dunlop and Ms Harwood. In both cases the offers would have left Joshua Brook in a better position than it achieved at trial. The costs offers were as follows:
i)on 12 January 2009 an offer to settle the proceedings by way of the application being dismissed by consent with no order as to costs;[104] and
ii)on 18 October 2010 an offer of compromise under Order 23 r.2 of the Federal Court Rules 1979 (Cth), making an offer on behalf of the respondents to pay the sum of $112,100 inclusive of interest, plus costs to be taxed if not agreed, in full and final settlement of the issues in dispute between the parties.[105]
Neither offer of settlement was accepted by Joshua Brook.[106]
[101] Nicholls Affidavit, para.6.
[102] Nicholls Affidavit, para.7.
[103] Nicholls Affidavit, para.14-18.
[104] Lethbridge Affidavit, para.9 and annexure TL-4.
[105] Lethbridge Affidavit, para.11 and annexure TL-5.
[106] Lethbridge Affidavit, para.13.
Conduct of Mr Dunlop
OCH and Mr Nicholls submit that Mr Dunlop’s request to Joshua Brook’s tax accountants not to call for the electronic file for the lodgment of the 2009/2010 accounts for Joshua Brook until after the proceedings were resolved was a deliberate refusal to take possession of the financial statements of Joshua Brook for 2009/2010 and could only be seen as disingenuous, particularly in the context of the request for those accounts by OCH and Mr Nicholls for the purposes of the litigation. This is characterised as a deliberate avoidance of the discovery of documents relevant to the proceedings.
Mr Dunlop’s submissions
Mr Dunlop does not specifically respond to the above submissions other than to conclude overall that leave should not be granted to OCH and Mr Nicholls to file their application out of time.
Ms Harwood’s submissions
Ms Harwood made further submissions which note that:
a)courts have been reluctant to make orders against directors who are non-parties in the past;[107]
b)in Arktos the Court indicated that an order for payment of costs would not ordinarily be made against a director of an insolvent company merely because the director caused the company to defend the proceedings whilst knowing or suspecting the company may not be able to meet an order for costs;[108]
c)there are comments in Citrus Queensland to similar effect to that in Arktos;[109]
d)the final outcome of Arktos was that a non-party director did not have a sufficient connection with the proceedings to make it just for a non-party costs order to be made;[110] and
e)in Citrus Queensland where a party’s wife had a financial interest in the litigation and had provided funding, the court was not persuaded that the financial arrangements resulted in a real link between the party’s wife and the proceedings and no costs order was made against her.[111]
[107] Citing Symphony Group Plc v Hodgson [1994] QB 179 at 191-192 per Balcombe LJ (“Symphony Group”), and cases there cited.
[108] Citing Arktos at para.17 per Lee J.
[109] Citrus Queensland (No. 10) at para.21 per Collier J.
[110] Arktos at paras.17-18 per Lee J.
[111] Citrus Queensland (No. 10) at para.33 per Collier J.
Ms Harwood submits that the substance of the argument for OCH and Mr Nicholls appears to be that financial circumstances should render it just to make an order for costs against a non-party director. The financial circumstances of this matter Ms Harwood submits are ordinary and not sufficiently exceptional to warrant departure from the ordinary rulings as to costs.
Consideration
There is no dispute that Joshua Brook has been in voluntary administration since 18 January 2012, and is now insolvent.
Costs are sought by OCH and Mr Nicholls on the basis that Joshua Brook was effectively insolvent at the time of the proceedings. The argument of OCH and Mr Nicholls is however somewhat contradictory: on the one hand arguing that Joshua Brook was insolvent, and on the other hand arguing that OCH and Mr Nicholls would not have been able to obtain security for costs, and did not even consider applying for security for costs, because:
a)the 2009 financial statements provided in the course of the proceedings showed a net loss of $439,836.63 by Joshua Brook, but also showed a very significant gross trading profit since 2008, up from $778,949.73 to $2,053,243.68, equity of $2,117,021.96 and cash on deposit of $809,367.21;
b)Mr Nicholls was aware that the businesses were, or should have been, profitable, and had no reason to believe that they would not be able to make significant profit once Mr Dunlop settled into the role;
c)Mr Nicholls had no reason to believe that the equity was anything other than as stated in the financial statements, and that the goodwill was very substantial; and
d)Mr Nicholls was comfortable with the cash on deposit and the backing of Ms Harwood by way of a loan of $500,000 to Joshua Brook.
OCH and Mr Nicholls cannot have it both ways by arguing that Joshua Brook was both insolvent and solvent to suit the purposes of their argument.
On the evidence it would appear that throughout the course of the proceedings, Joshua Brook was solvent. There is no suggestion that Joshua Brook was trading whilst insolvent until after 31 December 2010. Furthermore, in May 2011, it appears that a cash injection of $725,000 was made by Ms Harwood.[112] Joshua Brook was therefore seemingly solvent for some time at least after judgment was reserved, but before judgment was delivered it became insolvent, and went into voluntary administration on 18 January 2012.
[112] Administrator’s 13 February 2012 Report, Nicholls Affidavit, annexure PN-4, pages 20-21.
As OCH and Mr Nicholls point out, Joshua Brook had access to funds from:
a)significant gross trading profits (significant in the context of a small to medium enterprise), as well as cash on deposit, and equity against which it might presumably borrow funds; and
b)loans provided to it by Stewart Corporate or Ms Harwood, and the National Australia Bank.
No application for security of costs was made because, as Mr Nicholls deposes, he was “comfortable with the cash on deposit and the backing of Ms Harwood”.[113]
[113] Nicholls Affidavit, paras.31.
The evidence on behalf of OCH and Mr Nicholls as to Joshua Brook’s appearance of solvency leading up to and during the proceedings is consistent with the evidence:
a)of Mr Dunlop, who asserts Joshua Brook was still solvent as at 8 May 2011 when he resigned as a director;[114] and
b)in the Administrator’s 13 February 2012 Report which indicates that Joshua Brook may have been trading whilst insolvent from 31 December 2010, or, alternatively June 2011 (the alternative date being included because of an injection of $725,000 by Ms Brooks personally in May 2011).[115]
[114] Dunlop Affidavit, paras.16-22.
[115] Nicholls Affidavit, annexure PN-4, pages 20-21.
In Peter Breese & Associates Pty Ltd v CCI Holdings Ltd[116] the District Court of New South Wales observed that:
30. I should say that although I think it is permissible to examine events after the time of the original hearing and costs orders to enable assessment to be made of whether a third party costs order should be made I think this must be limited to evidence which points to the financial position of the company at the time of the original hearing. The fact that a company has become insolvent or impecunious after the original hearing, and for reasons other than the imposition of a costs order against it, would not be a basis, in my view, for an order being made under s 148B. If this were not so the Court would become embroiled in matters going beyond the confines of orders in or in connection with proceedings and the Court would then have to be considering matters subsequent to the proceedings and even considering events well past the conclusion of the proceedings.[117]
[116] (2004) 2 DCLR(NSW) 157 (“Peter Breese”).
[117] Peter Breese DCLR(NSW) at 164 at para.30 per Rein J. The Court notes that s.148B of the District Court Act 1973 (NSW) (“NSW District Court Act”) provides, relevantly as follows:
In this case, it does not appear that Joshua Brook was insolvent at the time of the hearing in these proceedings, for the reasons given above. That it subsequently became so is a matter which the Court considers it may take into account, but only if it became insolvent by reason of circumstances associated with the proceedings. That does not appear to be the case in this instance, the failure of Joshua Brook seemingly being caused by poor management by Mr Dunlop.[118] Joshua Brook was insolvent prior to the pronouncement of judgment and the ordering of damages to be payable on the counterclaim to OCH and Mr Nicholls.
[118] Administrator’s 13 February 2012 Report, Nicholls Affidavit, annexure PN-4, page 8.
An applicant who has applied for a costs order against a non-party may be deprived of that right if no prior notice of an intention to claim costs has been given to the non-party.[119] The rationale is that if notice is given, a non-party has an opportunity to defend its position, to pay monies into court, to make an offer of settlement and generally to protect itself and minimise costs which might be incurred. A non-party should be warned at the earliest opportunity of the “possibility” of an application for an order for costs against the non-party.[120]
[119] Symphony Group; Vestris.
[120] Symphony Group at 192-193 per Balcombe LJ.
In Vestris an application for costs orders against non-parties was refused because Mr Vestris was on notice of the plaintiff company’s impecuniosity from an early stage and had had ample opportunity to make application for security for costs and had failed to do so. There was a finding that Mr Vestris should have known, at the time of the commencement of the proceedings, that the plaintiff company was insolvent, and that fairness dictated that a non-party at risk of an order for costs must be, at least, advised by letter of a defendant’s intention to seek costs from the non-party.[121]
[121] Vestris at 458 per Olsson J (with whom Doyle CJ agreed).
The fact that judgment has been reserved does not preclude a non-party from being put on notice that when judgment is delivered costs will be sought against the non-party. In this case that was not done. Further, it was not done in circumstances where Joshua Brook went into voluntary administration on 18 January 2012, and it is apparent from Mr Nicholls’ evidence that:
a)he attended the first meeting of creditors on 30 January 2012;
b)OCH is recorded as an unsecured creditor for $40,000 in the Administrator’s 13 February 2012 Report;[122] and
c)Mr Nicholls is recorded as having attended the second meeting of creditors on 24 April 2012 on behalf of OCH, and to have abstained from voting on the administrator’s past remuneration and the administrator’s further remuneration and as having voted against the resolution for a deed of company arrangement.[123]
[122] Nicholls Affidavit, annexure PN-4, creditor listing.
[123] Nicholls Affidavit, annexure PN-5, minutes of the reconvened second meeting of creditors on 24 April 2012 and 6-8.
It is also relevant to note that Ms Harwood (described as Ms Brooks) was in attendance at the second creditors meeting on 24 April 2012 as a director of Joshua Brook, but also representing a number of creditors. At the second creditors meeting the Chairperson advised that Mr Nicholls had a contingent claim relating to ongoing litigation with respect to a counterclaim against Joshua Brook, which was admitted for voting purposes for a value of $1. It was also noted that Ms Harwood had recently settled a number of personal guarantee creditors and now stood in the shoes of those personal guarantee creditors, to a value of approximately $1.3 million (including debt owing to her personally). There is no indication that Mr Nicholls or OCH took the opportunity afforded by Ms Harwood’s presence at the second creditors meeting to indicate to her that there was likely to be a claim against her for costs as a non-party arising out of these proceedings.[124]
[124] Nicholls Affidavit, annexure PN-5, second creditors meeting minutes at pages 1-3.
Against that background, when judgment was delivered on 19 October 2012, and the issue of costs was ordered to be adjourned, there was no notice given of any application, or pending application, for costs against either Mr Dunlop or Ms Harwood. As set out above, no such notice was in fact given until 15 November 2012 by way of separate letters to Mr Dunlop and Ms Harwood, and no application was in fact then made until 7 January 2013.
The failure of OCH and Mr Nicholls to give any sort of notice or advice to Mr Dunlop or Ms Harwood of an intention, or possible intention, to claim costs against them as a non-party prior to 15 November 2012, together with the failure to make an application promptly once notice had been given (again for reasons set out above), is a factor to be considered by this Court. In the circumstances set out it is one which weighs against the success of a non-party costs application. As a matter of fairness, and proper practice, notice ought to have been given to Mr Dunlop and Ms Harwood at an earlier stage when it was seemingly apparent that Joshua Brook was impecunious.[125] The failure to put Ms Harwood on notice is also, in the circumstances, a not insignificant prejudice, particularly where, as here, it appears that OCH and Mr Nicholls were aware of Joshua Brook’s financial position, and Ms Harwood’s financial involvement with Joshua Brook, from shortly after the time that Joshua Brook went into voluntary administration.
[125] Ventris at 458 per Olsson J (with whom Doyle CJ agreed) and 471 per Lander J.
In the Court’s view the evidence of Mr Dunlop should be preferred to that of Ms Harwood as to their involvement in these proceedings whilst both directors of Joshua Brook. Given that Ms Harwood was effectively, through her shareholding in Stewart Corporate, the principal (51%) shareholder in Joshua Brook, was loaning it not inconsiderable amounts of money, and attended on three of the five days of trial, it is difficult to conceive that she would not have been involved in, and managed, or at least advised, in relation to the proceedings. Furthermore, Mr Dunlop gave a detailed account of both his and Ms Harwood’s regular involvement which is supported by contemporaneous documents, albeit limited in number, indicating weekly reporting to Ms Harwood and a memo concerning a board meeting in October 2010 which specifically refers to the proceedings, and that the preliminary accounts for 2009-2010 ought not be sent to the accountants until the proceedings were resolved.[126] Further, the Court notes, but does not place significant weight, on Mr Nicholls’ recollection of a conversation with Mr Dunlop (several months prior to the commencement of the litigation) concerning the limits on Mr Dunlop’s decision-making capacity, and the necessity to consult Ms Harwood in relation to major decisions affecting Joshua Brook, because she was in control of the business.[127]
[126] Dunlop Affidavit, annexures GJD3 and 6.
[127] Nicholls Affidavit, para.25.
In the Court’s view there is nothing untoward in the manner in which Joshua Brook managed the proceedings. It was a small to medium size business enterprise, with two directors, who were also the shareholders, one of whom (Mr Dunlop) managed the business on a day-to-day basis, and the other of whom, Ms Harwood, was the majority shareholder, and responsible for provision of part of the funding by way of loans to Joshua Brook. As directors and shareholders Mr Dunlop and Ms Harwood ran the business, Mr Dunlop day-to-day, and Ms Harwood as required when major decisions were to be made, or board meetings were to be attended. Loans were also provided by the National Australia Bank to fund the business.
The assertion by OCH and Mr Nicholls that because Ms Harwood injected the sum of $725,000 to Joshua Brook in May 2011 and because Stewart Corporate was also loaning funds, Ms Harwood was, in substance, paying Joshua Brook’s legal fees cannot be made out. This is because OCH and Mr Nicholls have not demonstrated that any funding provided by Ms Harwood or Stewart Corporate was for the specific purpose of paying legal fees. The legal fees might equally have been paid from cash at bank or monies loaned from the National Australia Bank. There is no evidence as to how much Joshua Brook’s legal fees were or when they were paid. The Administrator’s 13 February 2012 Report indicates no more than that Ms Harwood’s injection of $725,000 in May 2011 was “used to satisfy trade creditors only”.[128]
[128] Administrator’s 13 February 2012 Report at page 21.
There is no evidence of “intermeddling” by an unrelated corporation or person in the business of Joshua Brook. The business was run by its directors, who were also its shareholders, and as such they managed and actively participated in the litigation process in their respective capacities as directors, as one would expect them to do. There is nothing exceptional or untoward about that, of itself, which would warrant the Court considering making a non-party costs order against them on that basis.
Being or acting as a director is not of itself sufficient to justify a non-party costs order, even where litigation is conducted in the knowledge of an inability to pay costs if unsuccessful in the proceedings.[129]
[129] Citrus Queensland (No. 10) at para.21 per Collier J.
The authorities indicate that a third party who stands to financially gain from funding litigation generally refers to an external party who both promotes and funds the litigation and has a direct financial interest in that litigation.[130] The types of third parties against whom a non-party costs order might typically be granted might therefore include the following:
[130] Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 at 414 per Callinan J; [2001] HCA 26 at para.36 per Callinan J (“Arundel”); Gore FCR at 438-439 per O’Loughlin, Whitlam and Marshall JJ; FCAFC at para.27 per O’Loughlin, Whitlam and Marshall JJ.
a)a litigation funder, contracted to provide funds in return for a percentage of any damages awarded, but also liable under the litigation funding contract for costs incurred by the party to whom they are contracted, and who because of the terms of the litigation funding agreement therefore have a direct financial interest in the outcome of the litigation, and who can therefore be considered to be a “real party” to the litigation;[131]
b)a trade union for a member, or an insurer for an insured, funding litigation on behalf of the member or the insured, where there is:
i)an implied obligation to the member or insured to be liable for the costs;
ii)an interest on the part of the trade union or insurer in supporting and being seen to support the member’s or the insured’s claim;
iii)the conduct of the litigation itself; and
iv)expectation based on convention that the trade union or insurer will bear the costs of the successful party should the member or insurer lose;[132] and
c)a wanton and officious intermeddler,[133] such, perhaps, as the Institute of Taxation Research Pty Ltd which supported and backed the litigation and advanced the “so-called arguments” in Arundel.[134]
[131] Arundel ALR at 414 per Callinan J; HCA at paras.36-37 per Callinan J; Gore FCR at 438-439 per O’Loughlin, Whitlam and Marshall JJ; FCAFC at para.27 per O’Loughlin, Whitlam and Marshall JJ.
[132] Murphy v Young & Co’s Brewery plc & Anor [1997] 1 WLR 1591 at 1601-1602 per Phillips LJ (“Murphy”).
[133] Giles v Thompson [1994] 1 AC 142 at 164 per Lord Mustill.
[134] Arundel ALR at 412 per Callinan J; HCA at para.30 per Callinan J.
The distinguishing feature of the above cases is that the parties are truly external parties funding or supporting the litigation, who, at least in some instances, expect some return from successful litigation or a benefit to a member or person to whom they owe some obligation.
The Full Court of the Federal Court observed in Gore:
Mere encouragement of litigation is not sufficient to make a stranger liable for costs.[135]
[135] Gore FCR at 439 per O’Loughlin, Whitlam and Marshall JJ; FCAFC at para.27 per O’Loughlin, Whitlam and Marshall JJ.
The mere fact that an insurer was funding litigation, without more (that is, without the kinds of factors set out above) did not justify a non-party costs order against the insurer in Murphy. Although it was a case of funding on the basis of a familial relationship, Citrus Queensland (No. 10) does stand for the proposition that mere funding of litigation is not of itself sufficient to justify a non-party costs order.[136] In this case, to the extent that the litigation was funded by Ms Harwood, or an entity controlled by her, namely, Stewart Corporate, it was done because she was a director of Joshua Brook. As such, she was doing no more than might be expected of a director and major shareholder of a small to medium enterprise. Likewise, both Ms Harwood and Mr Dunlop were involved in managing the litigation, for the same reasons. As directors of Joshua Brook it was in the interests of Joshua Brook that its levels of debt be reduced, and if that was to be a product of the litigation, then it was appropriate for them to be involved in the manner that they were. As directors of Joshua Brook, Mr Dunlop and Ms Harwood are not external parties funding and involved in the litigation in the sense referred to in the authorities which might, subject to various conditions being met, justify the making of a non-party costs order. Nor were they mere intermeddlers. In fact, they were doing no more than their duty as directors of Joshua Brook. If collaterally, and somewhat remotely, a reduction in the level of debt of Joshua Brook resulted in a benefit to them that benefit was too remote to warrant, in the circumstances of this case, its consideration as the basis for a non-party costs order. It is necessary to observe, however, that in all of the circumstances of this case, it is difficult to see what, if any, benefit would have flowed to either Ms Harwood or Mr Dunlop in this case.[137]
[136] Citrus Queensland (No. 10) at para.32 per Collier J; see also Condliffe v Hislop (1996) 1 WLR 753.
[137] Corporations Act, s.245T(1).
As indicated above OCH and Mr Nicholls have not sought or obtained an order for security for costs in this matter, and the primary reason for that is that at the time of the proceedings, and leading up to the hearing in particular, there did not appear to be any reason to doubt that Joshua Brook was able to fund the litigation. The failure to apply for security for costs is, therefore, not a fact which would stand in the way of OCH and Mr Nicholls obtaining a non-party costs order in this matter.
The issue of joinder of parties is not relevant in this case. There was no basis upon which Mr Dunlop and Ms Harwood could have been applicants to the original claim, and no basis on which they could have been parties to the counterclaim. In those circumstances, the failure to make an application to join them to the proceedings at an earlier time, does not stand in the way of OCH and Mr Nicholls obtaining a non-party costs order in this matter. That does not, of course, excuse OCH and Mr Nicholls for the failure to warn of the possibility of a non-party costs orders earlier than they did.
Without more, and bearing in mind that Joshua Brook, on the evidence, was solvent at the time, the withholding of the preparation of the taxation accounts for 2009/2010 is of little moment.
The considerable costs incurred by OCH and Mr Nicholls, and the settlement offers made, would be relevant to an assessment of costs, but in the circumstances otherwise set out above, the amount of costs incurred by a party and the failure by Joshua Brook to accept settlement offers do not give rise to any reason to impose non-party costs orders on Mr Dunlop or Ms Harwood, nor do they explain the extent of, or reason for, the delay in making any application for costs by OCH and Mr Nicholls. If anything, the amount of the costs incurred, and now sought to be recouped, ought to have resulted in expedition not delay by OCH and Mr Nicholls.
Underpinning the rationale for the making of a non-party costs order is the concept that it is proper to make a non-party costs order against the, or a, “real party” to the proceedings, where it is in the interests of justice to do so.[138] A non-party costs order is a power to be “exercised sparingly”[139] or in “exceptional circumstances”.[140]
[138] Knight at 185, 188, 190 and 193 per Mason CJ and Deane J (with whom Gaudron J agreed); Arundel ALR at 414 per Callinan J; HCA at para.37 per Callinan J.
[139] Arundel ALR at 412 per Callinan J; HCA at para.30 per Callinan J
[140] Murphy at 1604 per Phillips LJ; Citrus Queensland (No. 10) at para.23 per Collier J.
In this case, the Court is of the view that, having regard to the matters set out above, there is no basis on which it can properly or objectively be concluded that Mr Dunlop or Ms Harwood are the real parties to the proceedings. This is not, in its terms, a case of exceptional circumstances, but rather of a small to medium sized enterprise, managed and funded by and through the exertions of its directors, who are also its shareholders, with borrowed funds which, on the evidence in this case, were not borrowed to fund the proceedings directly, or upon conditions imposed by the borrower as to the conduct of the litigation (including any form of fee payable directly to the borrower). Stripped bare, to conclude that in this case a non-party costs order was appropriate, would be to reach a conclusion which so broadens the range of circumstances in which a non-party costs order might be granted, as to render non-party costs orders commonplace, contrary to authority binding this Court.[141] In the exercise of the broad discretion vested in the Court by s.79(2) and (3) of the FCCA Act, the Court is not prepared to make a non-party costs order, as it is not in the interests of justice to do so.
[141] Knight, Arundel and Gore.
In all of the above circumstances, the prospects of success of the application for a non-party costs order in this matter are such that it would be highly unlikely to succeed. That conclusion is one which does not weigh in favour of an extension of time in which to file an application for non-party costs orders in these proceedings.
Conclusion – extension of time
For the reasons set out above, none of the individual factors favour OCH and Mr Nicholls’ application for an extension of time being granted. Considered collectively the same outcome results. In the circumstances, it follows that the application under r.21.02(1)(b) of the FCC Rules for an extension of time in which to file an application for costs against Mr Dunlop and Ms Harwood must be dismissed.
Conclusions and orders
The Court has concluded that:
a)OCH and Mr Nicholls do not require leave under s.444E(3)(a) and (c) of the Corporations Act to proceed with the application in a case;
b)time should not be extended under r.21.02(1)(b) of the FCC Rules to permit OCH and Mr Nicholls to bring a non-party costs application against Mr Dunlop and Ms Harwood; and
c)the application in a case by OCH and Mr Nicholls must therefore be dismissed.
The Court will hear the parties as to the costs of the application in a case.
I certify that the preceding one hundred and sixteen (116) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Associate:
Date: 27 June 2014
“(1) subject to this Act and the rules and subject to any other Act - (a) costs in or in relation to any proceeding shall be in the discretion of the Court; (b) the Court has full power to determine by whom, to whom and to what extent costs are to be paid in or in relation to any proceeding; and (c)…”. The discretionary power to award costs vested in the District Court of New South Wales by s.148B(1) of the NSW District Court Act is relevantly similar to that granted to the Federal Court under s.43 of the Federal Court of Australia Act 1976 (Cth) and to this Court under s.79(2) and (3) of the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”).
1
13
7