Marshall v Sheahan

[1999] FCA 982

FEDERAL COURT OF AUSTRALIA

Marshall v Sheahan [1999] FCA 982

JILLIAN HELEN MARSHALL, RICHARD JOHN COOPER & SIMON VINCENT
COOPER v JOHN SHEAHAN as Trustee of the bankrupt estates of JILLIAN HELEN
MARSHALL, RICHARD COOPER & SIMON VINCENT COOPER and
W J FOUNTAIN PTY LTD (ACN 075 652 318) and WILLIAM JOHN FOUNTAIN

S 7097 OF 1999

MANSFIELD J
ADELAIDE
17 JUNE 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 7097 OF 1999

BETWEEN:

JILLIAN HELEN MARSHALL,
RICHARD JOHN COOPER &
SIMON VINCENT COOPER
Applicants

AND:

JOHN SHEAHAN as Trustee of the bankrupt estates of
JILLIAN HELEN MARSHALL, RICHARD COOPER &
SIMON VINCENT COOPER
First Respondent

W J FOUNTAIN PTY LTD
(ACN 075 652 318)
Second Respondent

WILLIAM JOHN FOUNTAIN
Third Respondent

JUDGE:

MANSFIELD J

DATE:

17 JUNE 1999

PLACE:

ADELAIDE

REASONS FOR DECISION

HIS HONOUR:

1. On 4 June 1999 I dismissed an application for interlocutory relief in this matter.  The costs of that application were adjourned to be determined today.  The respondents seek costs against the applicants and, in addition, against a person who was not party to those proceedings, Andrew Charles Cooper (“Andrew Cooper”), and in addition that those costs be paid by the solicitors for the applicants (“the solicitors”).

2. Because those orders for costs being sought were other than the normal order, it was necessary to adjourn the application for costs so that Andrew Cooper could be notified of the application and so that, as between the applicants and their solicitors, the issues to which the application might give rise could be addressed.  Counsel appearing for the applicants on the interlocutory application generally, today appears for the applicants, for Andrew Cooper and the solicitors.  The applicants, Andrew Cooper and the solicitors all oppose the orders for costs sought against them.

3. In my view the respondents are entitled to costs against the applicants.  The applicants do not oppose such an order in relation to the second and third respondents, but they contend that an order for costs should not be made in favour of the first respondent.

4. The ordinary rule, as Devlin J said in Anglo-Cyprian Trade Agencies v Paphos Wine Industries (1951) 1 All ER 873 at 874 is that:

   “… where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.”

   Subsequent authorities indicate that that misconduct may relate to the litigation or to circumstances leading up to the litigation.

5. In my view, nothing has been put by counsel for the applicants, for Andrew Cooper or for the solicitors, to indicate any such misconduct on the part of the first respondent.  I think the ordinary rule for costs should therefore apply.

6. Power to make an order for costs against Andrew Cooper and against the solicitors exists under s 43 of the Federal Court of Australia Act 1976 (Cth). The existence of that power is not disputed by them. Such a power has been recognised in respect of analogous legislation by the High Court in Knight v FP Special Assets (1992) 174 CLR 178, and has been exercised by this Court against solicitors, for example, in Re Bendeich (No 2) (1994) 53 FCR 422, and Da Sousa v Minister for Immigration Local Government and Ethnic Affairs (1993) 114 ALR 708, as well as against other non-parties. In Oz B and S Pty Ltd v Elders IXL (1993) 117 ALR 128 an order was made for costs against the principal director and the secretary of a litigant company.

7. I am conscious of the warning given by Drummond J in Bendeich, at 426, that it is necessary to exercise the power to award such costs with caution.

8. In the case of Andrew Cooper, counsel referred me to a passage in the decision of Knight (above) where Mason CJ and Deane J said at 192 to 193:

   “For our part, we consider it appropriate to recognize 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.”

9. I am satisfied, having regard to those considerations, that it is appropriate in this instance to make an order for costs against Andrew Cooper.  The applicants are all bankrupts.  There is nothing to indicate that, apart from the matters which are in issue in this proceeding, and the land which is the subject of the interlocutory order sought, they have other resources capable of meeting any order for costs.  I accept that they are insolvent in the sense in which that judgment refers.  I also find that Andrew Cooper has played an active part in the conduct of the litigation and that he has an interest in the subject of the litigation.  The interlocutory application itself was to procure an order that Rothmore Farm should not be sold pursuant to a contract of sale entered into between the first applicant and the second or third respondents.  Andrew Cooper filed an affidavit to say that he was prepared to purchase the property if that contract were not performed, for the sum of $1.5 million.  The purpose of the application, at least in part, as I judge it to have been from the submissions and from the affidavit material before me, was to prevent the sale of the property Rothmore Farm to the second and third respondents so that Andrew Cooper could acquire it and so that the farming activities of the Cooper family could continue on Rothmore Farm.  So much was acknowledged this morning in submissions by counsel for the applicants, Andrew Cooper and the solicitors.

10. Furthermore, as appeared in the course of the submissions, counsel for the applicants on a number of occasions made submissions that Andrew Cooper was actively interested in the outcome of the application and was in a general sense described as a “client” involved in the application.  It also appeared in the course of submissions that he was a person from whom counsel for the applicants anticipated that an undertaking as to damages in the usual form was to have been provided, although (as I found) it had not in fact been provided.  In those circumstances, it seems to me that the requirements for the exercise of the power, albeit to be cautiously exercised, are made out and that it is appropriate in this instance that an order for costs be made against Andrew Cooper.

11. In respect of the claim against the solicitors, the position is more complicated.  The underlying principle is that expressed in Myers v Elman [1940] AC 282. Drummond J in Bendeich at 427 said:

    “Myers v Elman provides a sound guide to the circumstances in which it will be proper under s 43 of the Federal Court of Australia Act and under s 32 of the Bankruptcy Act to make an order that the solicitor for one party pay the costs of that party or the other party.  Lawyers should know that, so long as they are not guilty of either professional misconduct or gross, as opposed to mere, negligence in the way they conduct their client’s case, they will not be exposed to any personal liability to pay either the costs of their own client or those of the opposing litigant.”

12. I have carefully considered the submissions made in this matter.  It is said that in a number of respects there is clear evidence to indicate that the solicitors’ conduct of the matter is sufficient to warrant an order for costs being made against them.  The first is that there was no undertaking or security for any undertaking proffered at the hearing on 4 June 1999, and that counsel for the applicants relied only upon the “undertaking” in the affidavit of Andrew Cooper to which I have referred, in which he said that he undertook to purchase Rothmore Farm for $1.5 million within twenty-one days of any final order in these proceedings.  It was not an undertaking as to damages in the usual form, or as the Practice Direction of the Court requires.  It was referred to on 27 May 1999, prior to the directions which I then gave, including the direction that the applicants file and serve any undertaking which they or any other person on their behalf may proffer if the interlocutory orders or any of them are granted and that they file the terms of any proposed security to be offered in support of any such undertaking by 28 May 1999.  It clearly did not meet that description.

13. Counsel for the applicants, Andrew Cooper and the solicitors has today indicated that he is instructed on behalf of all of those parties that the applicants determined to proffer no undertaking nor to proffer any security in support of the application for interlocutory relief beyond that contained in the affidavit of Andrew Cooper to undertake to purchase Rothmore Farm for $1.5 million if the Court set aside the contract between the first respondent and the second and third respondents.  As I have noted, it was not an undertaking as to damages in the usual form or in the form of the Court’s Practice Direction.  It was unsupported by any evidence of any cogency as to his ability to meet that payment in any event.

14. However, it is not simply a matter where the applicants have given instructions to that effect and the solicitors have complied with them.

15. The course of the hearing on the application for interlocutory relief indicates that counsel for the applicants was instructed that, notwithstanding the instruction (as I have today been told) which had existed as between the applicants and the solicitors, an undertaking as to damages had been or was about to be filed.  The hearing proceeded on that basis for a considerable time.  There were adjournments granted whilst the proposed undertaking was to be produced, and whilst instructions were taken to endeavour to produce evidence orally of some form of “security” for the proposed undertaking.  Counsel said expressly that he had been told that an undertaking was about to be filed.  The only conclusion which I can draw is that the instructions given by the applicants to the solicitors were not satisfactorily conveyed to counsel then appearing for the applicants.  It is a fundamental matter that such an undertaking would generally be required and counsel for the applicants acknowledged that.  It is a matter to which the directions given on 27 May 1999 specifically referred.

16. The failure of the solicitors to give clear instructions to counsel for the applicants that, notwithstanding those matters, the applicants wished to proceed with the interlocutory application without any such undertaking or without any such security led to a considerable amount of time of the hearing being wasted on submissions which were, in the event, misconceived because of the underlying instructions which I am now told existed and which led to adjournments from time to time during the course of the hearing.  In my view, those issues occupied most of the hearing.  I am unable to attribute responsibility for that misunderstanding other than to the solicitors’ failure properly to instruct counsel.

17. There are other matters which counsel for the applicants, Andrew Cooper and the solicitors acknowledged today as indicating some failure on the part of the solicitors but, in my view, although significant, they are of lesser measure.  They include the failure of those solicitors on behalf of the applicants to give notice of material proposed to be relied upon by the applicants on the application.  That led to the need for a number of materials being extracted from other files of the Court for tender and then being the subject of on-the-spot review by the respondents.  The tender of these materials gave rise to significant issues as to their relevance and admissibility which then required the respondents to address those issues on the run and without notice.  There were affidavits which were filed beyond the time which the Court fixed, and which were in a form which the respondents properly and successfully objected to in significant respects.  There was evidence which was not received because it was filed late, so that the respondents had not had a sufficient opportunity to consider that material.  In fairness, they could not address it for the purposes of the application in the time available to them.  At least in large part, the nature and content of that material itself shows that there is no reason why that material would not have been identified in a timely manner.  It was, or should have been, obvious that the respondents would be confronted with problems by reason of the applicants’ failure to comply with the directions given.  It has not been put by counsel for the applicants, for Andrew Cooper or for the solicitors, that there were any particular exculpatory circumstances which led to that material or to those affidavits being presented in that form or being advanced at the time at which they were advanced.  In particular, it has not been asserted that that was due to some dilatory conduct on behalf of the applicants.  In my view the absence of such submission is significant to the weight which I attach to those defects as against the solicitors, together with the acknowledgment made on their behalf by counsel.  I think it is appropriate in the circumstances to ascribe those failures to the solicitors, rather than to the applicants.

18. For those reasons, I have reached the level of satisfaction necessary before making an order for costs against solicitors in a proceeding.  I propose therefore to order that the costs of that interlocutory application also be paid by the solicitors.

19. In the course of reply, counsel for the first respondent made an application that the costs be taxed on a solicitor-client basis.  I have considered the submissions on that matter.  I am not satisfied that it is necessary or appropriate to make such order in the light of the orders which I presently propose to make.  There is no work which is immediately apparent to me, and no particular work which counsel for the first respondent identified, which might have been done to be covered by an order for solicitor‑client costs and which would not be covered by the normal order for costs.  There may be such work but, if there were, I would require that work to be identified and the amount of the solicitor‑client costs to be quantified so that I could have some understanding of the consequences of such an order.  I am not disposed to accede to that application.

20. On the interlocutory application I make an order that the costs of the respondents be taxed and paid by the applicants, by Andrew Cooper and by the solicitors.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.

Associate:

Dated:            20 July 1999

Counsel for the Applicants:	Mr D C Fitzgibbon
Solicitors for the Applicants:	Alderman Consultant Solicitors
Counsel for the First Respondent:	Mr R C White QC With him Mr G S Davis
Solicitors for the First Respondent:	Piper Alderman
Counsel for the Second and Third Respondents:	Ms E F Nelson QC
Solicitors for the Second and Third Respondents:	Andrew Thiele & Co
Date of Hearing:	17 June 1999
Date of Decision:	17 June 1999