May v Christodoulou
[2011] NSWCA 75
•04 April 2011
Court of Appeal
New South Wales
Case Title: May v Christodoulou Medium Neutral Citation: [2011] NSWCA 75 Hearing Date(s): 16 February 2011 Decision Date: 04 April 2011 Jurisdiction: Before: Macfarlan JA at 1, Handley AJA at 3, Sackville AJA at 56.
Decision: 1. Appeal allowed.
2. Set aside the order made by Robison DCJ on 15 May 2009 that the appellant be jointly and severally liable with Belltree Constructions Pty Ltd to pay the respondent's costs in the District Court proceedings.
3. The respondent pay the appellant's costs of the appeal.
4. Direct that the respondent have a certificate under the Suitors Fund Act 1951 (NSW), if qualified.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: COSTS - director represents defendant company at trial - plaintiff succeeds - non-party costs order made against director - whether primary Judge erred in making the order - criteria for making a costs order against a director representing a defendant company
PROCEDURE - Home Building Act 1989 (NSW), s 48L - defendant applies for transfer of the proceedings - application made on third day of hearing - application refused - whether refusal deprived Court of jurisdiction - whether right to apply for a transfer had been waived
Legislation Cited: Civil Procedure Act 2005 (NSW)
Home Building Act 1989 (NSW)
Suitors Fund Act 1951 (NSW)Home Building Regulation 2004 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Rules of the Supreme Court of Queensland 1900 (Qld)
County Courts Act 1888 (UK)
Supreme Court of Judicature Act 1874 (UK)
Supreme Court of Judicature Act 1890 (UK)Cases Cited: Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 8 NSWLR 104
Broad v Perkins (1888) 21 QBD 533
Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394
Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39; 1 WLR 2807
Eyres v Butt [1986] 2 Qd R 243
Flinn v Flinn [1999] VSCA 134; 3 VR 712
Flower & Hart v White Industries (Qld) Pty Ltd [1999] FCA 773; 87 FCR 134
FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340
Frinton & Walton UDC v Walton & District Sand and Mineral Co Ltd [1938] 1 All ER 649
Gore v Justice Corporation Pty Ltd [2002] FCAFC 83, 119 FCR 429
Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665; [2003] QB 1175
Hubbard Association of Scientologists International v Anderson [1972] VR 340
In re Jones v James (1850) 19 LJQB 257
In re Land and Property Trust Co Plc [1991] 1 WLR 601; 3 All ER 409
Kebaro Pty Ltd v Saunders [2003] FCAFC 5
Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178
Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; 239 CLR 75
Molnar Engineering Pty Ltd v Herald & Weekly Times Ltd (1984) 1 FCR 455
Moore v Gamgee (1890) 25 QBD 244
New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8
Phillips v Martin (1890) 11 NSWLR 153
Re Education Pty Ltd and the Companies Act [1963] NSWR 1340; 80 WN (NSW) 497
TGA Chapman Ltd v Christopher [1998] 1 WLR 12; 2 All ER 873
Tharros Shipping Co Ltd v Bias Shipping Ltd (No 3) [1997] 1 Lloyd's Rep 246
Tritonia Ltd v Equity & Law Life Assurance Society [1943] AC 584
Yates v Boland [2000] FCA 1895Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455 (BCCA)
Re GJ Mannix Ltd [1984] 1 NZLR 309
Texts Cited: K R Handley, Estoppel by Conduct and Election (2006)
Category: Principal judgment Parties: Stephen May (Appellant)
Cypriana Christodoulou (Respondent)Representation - Counsel: Counsel:
Mr S May (Appellant in Person)
Mr G A Sirtes (Respondent)- Solicitors: Solicitors:
Boyd Lawyers (Respondent)File number(s): CA 2009/298308 Decision Under Appeal - Court / Tribunal: - Before: Robison DCJ - Date of Decision: 15 May 2009 - Citation: - Court File Number(s) DC 5084/07 Publication Restriction:
Judgment
MACFARLAN JA : I agree with the orders proposed by Sackville AJA and with the reasons that his Honour gives. As his Honour points out, UCPR r 7.2 conferred a right of appearance upon Mr May, subject to compliance with the formal requirements of that rule. There was no reason why Mr May's exercise of that right should have been regarded, as it was by the primary judge, as a significant factor in favour of ordering Mr May, a non-party, to pay the costs of the proceedings.
Any abuse by Mr May of his right of appearance would have militated in favour of ordering him to pay these costs, just as it would have if he had been a legal practitioner. But, as Sackville AJA demonstrates, there was no such abuse. The primary judge's criticism of Mr May's conduct of the hearing was mild (to the effect that "it left something to be desired"). Such criticism would not justify the making of a costs order against a legal practitioner, nor should it justify one against a director who appears for his company as of right. The primary judge should have been, but was not, guided in the exercise of his discretion concerning costs by the decisions of the High Court in Knight v FP Special Assets and of this Court in FPM Constructions .
HANDLEY AJA : In this application for leave to appeal, which was heard as an appeal, I have had the benefit of reading in draft the reasons for judgment of Sackville AJA. He has set out the facts and the history of the proceedings and I gratefully adopt these parts of his reasons. I agree with his Honour's conclusions on the jurisdictional question and have nothing to add, but I have the misfortune to differ on the costs question.
The applicant took advantage of UCPR Pt 7 r 7.2 to appear on behalf of Belltree Constructions Pty Ltd (the Builder) to conduct its defence of proceedings brought by the respondent for restitution of moneys overpaid by mistake, and for damages for breach of contract.
The applicant's mother was the only shareholder in the Builder but the applicant was a director.
UCPR Pt 7 r 7.2 entitles a director of a company to commence or defend proceedings on its behalf subject to compliance with its procedural requirements. The applicant did not comply strictly with these requirements but it has not been suggested that he can derive any advantage from that fact.
The legislative background to the order of Robison DCJ of 16 May 2009 that the applicant and the Builder pay most of the costs of the trial jointly and severally is s 98 of the Civil Procedure Act (the Act), UCPR Pt 7 r 7.1(2)(a), and Pt 42 r 42.3. Section 98 (1) provides:
(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
Part 7 r 7 (2), read with relevant definitions, enables a company, acting by a director, to commence and defend proceedings in any court, but r 7.1(3) provides that a company can only commence proceedings in the Supreme Court by a director if that director is also a plaintiff. Rule 7.2(2) prescribes the steps required before a director can act in this way. The prescribed affidavit must contain a statement by the director (r 7.2(2)(iv)) that he is aware that "he ... may be liable to pay some or all of the costs of the proceedings."
At the relevant time UCPR Pt 42 r 42.3 (repealed on 7 May 2010) provided:
"(1) ... the Court may not, in the exercise of its powers and discretions under s 98 of the Civil Procedure Act 2005, make any order for costs against a person who is not a party.
(2) This rule does not limit the power of the Court:
...
(e) to make an order for costs against a person who commences or carries on proceedings ... as an authorised director of a corporation ...".
This rule restricted the power of the Court to make a costs order against a non-party: Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd [ 2009 ] HCA 43, 239 CLR 75, 91-2.
The power in the Rules of the Supreme Court of Queensland, which was not restricted in this way, was considered in Knight v FP Special Assets Ltd [1992] HCA 28, 174 CLR 178 ( Knight ). Mason CJ and Deane J, with the concurrence of Gaudron J, said at pp 192-3:
"... the prima facie general principle is that an order for costs is only made against a party to the litigation ... there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. ... 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 ... 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 any non-party if the interests of justice require that it be made (the general category in Knight )."
This passage was approved by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39; 1 WLR 2807, 2817 ( Dymocks )
In FPM Constructions Pty Ltd v Council of the City of the Blue Mountains [2005] NSWCA 340 ( FPM ), where an order against a non-party director was set aside on appeal, Basten JA, at [198] - [219], with the agreement of Beazley and Giles JJA, reviewed some of the cases. His conclusions in [210] and [214] were:
"... the principle established in Knight v FP Special Assets cannot be limited to the specific circumstances of the case, the joint judgment having expressed a conclusion in more general terms ... It is clear that the categories of case which may attract the exercise of the power are by no means closed, nor should they be. Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:
(a) the unsuccessful party ... was the moving party and not the defendant;
(b) the source of funds for the litigation was the non-party or its principal;
(c) the conduct of the litigation was unreasonable or improper;
(d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and
(e) the unsuccessful party was insolvent or could otherwise be described as a person of straw.
...
214 The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success ... Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the "interest" in its outcome or subject-matter."
In that case the company was represented by counsel at the trial and on appeal. Basten JA did not consider the position where a director acted as advocate for the company.
Sackville AJA holds that the trial judge's reasoning in [68]-[69] below for making the costs order against the applicant revealed errors of principle which entitle the Court to intervene and re-exercise the discretion.
The trial judge referred to the general rule that a corporation must be represented by a solicitor and said that the applicant had sought the indulgence of the Court to permit him to appear. He also relied on the fact that the applicant had "conducted the proceedings" on behalf of the company and had a "direct and personal involvement".
Sackville AJA noted [95], with respect correctly, that UCPR Pt 7 r 7.1(2)(a) entitles a director to conduct proceedings on behalf of the company as of right subject only to compliance with its procedural requirements. The Court does not grant an indulgence when the facility is invoked. The indulgence is in the Rules themselves.
The common law rule was that a corporation could only appear by a solicitor. This is the law in England: Frinton & Walton UDC v Walton & District Sand and Mineral Co Ltd [1938] 1 All ER 649; Tritonia Ltd v Equity & Law Life Assurance Society [1943] AC 584; Australia: Re Education Pty Ltd and the Companies Act [1963] NSWR 1340 ; 80 WN (NSW) 497, Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (1986) 8 NSWLR 104, 110-112 per Samuels JA; Hubbard Association of Scientologists International v Anderson [1972] VR 340 FC, Molnar Engineering Pty Ltd v Herald & Weekly Times Ltd (1984) 1 FCR 455, and New Zealand: Re GJ Mannix Ltd [1984] 1 NZLR 309 CA.
A company which was unable or unwilling to retain a solicitor could not enforce its rights as a plaintiff or defend proceedings against it. The common law rule could cause injustice to companies, but it protected plaintiffs, who were not forced to incur irrecoverable legal costs in proceedings against an insolvent company defended by a director. The risk was reduced where the company was the plaintiff because a defendant can seek an order for security for costs, but as Mason CJ and Deane J said in Knight , at 190:
"... it has been said that the practice of making ... an order for security for costs ... is the appropriate remedy ... but there are limitations ... These ... are such that security for costs is not a remedy in all cases in which justice calls for an order ... against a non-party."
When the matter is considered against the background of the previous law and its practical operation, in my opinion it was not a material misdirection for the trial judge to hold that the applicant had sought the indulgence of the Court. He took advantage of the indulgence granted by the rules.
In FPM Basten JA referred at [210] to Gore v Justice Corporation Pty Ltd [2002] FCAFC 831, 119 FCR 429 ( Gore ) where the Full Court (O'Loughlin, Whitlam and Marshall JJ) reviewed the authorities and made an order against a non-party. The authorities included TGA Chapman Ltd v Christo pher [1998] 1 WLR 12; 2 All ER 873, and Tharros Shipping Co Ltd v Bias Shipping Ltd (No 3) [1997] 1 Lloyd's Rep 246, where orders were sought against a non-party which had assisted the unsuccessful defendant.
One of the criteria identified in FPM : [11] above, was (a) whether the moving party was unsuccessful. Gore and the two English cases suggest that this is not material. An unsuccessful defendant provides a more promising basis for a non-party order because the successful plaintiff could not protect himself by getting security for costs.
Orders were made against non-parties in Flinn v Flinn [1999] 3 VR 712 CA; Yates v Boland [2000] FCA 1895; and Kebaro Pty Ltd v Saunders [2003] FCAFC 5 ( Kebaro ). In the latter case the Court (Beaumont, Sundberg and Hely JJ) said that the authorities established the following propositions [103]:
" A non-party costs order is exceptional relief, although some categories of factual situations are now recognised as within the discretion, for example, the situation described by Mason CJ and Deane J in Knight at 192-3 ...
Whilst such an order is e xtraordinary, the categories of case are not closed, although in order to warrant its exercise, a sufficiently close connection, or as Gobbo J expressed it, a 'real and direct and ... material' connection with the principal litigation, must be demonstrated; in the words of Callinan J, the non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party."
The Court emphasised the importance of the role of the non-party in the litigation. The general category in Knight and the role of the non-party were not among the criteria identified in FPM [210], quoted [11] above.
Kebaro was approved by the Privy Council in Dymocks [2004] 1 WLR at 2815, 2818.
In Flinn [1999] 3 VR 712 the appeal substantially failed and the non-party had a most substantial interest in the outcome. The Court said at p 760:
"... relevant considerations include whether the person concerned has managed the legal proceedings or has financed them ... In the present case [the non-party] has played an active role in the institution and conduct of the appeal; [but not as advocate]; indeed he has been the real controller of it ...".
In Yates v Boland [2000] FCA 1895 the Full Court (O'Loughlin, North, and Weinberg JJ) dismissed an appeal from a non-party costs order. The applicant company was "a man of straw", the non-party had played an active role in the litigation, and he and his family were the beneficial shareholders in the applicant. The Court recognised that a person could have "a real and personal interest in the litigation" where the direct interest was that of a family member.
In Kebaro [2003] FCAFC 5 the Full Court said [111], [113]:
"111. ... When the whole course of authority is reviewed ... it can be appropriate to exercise the power against a person who may be characterised as no more than a real party to the litigation in 'critical' and 'important' respects, albeit not the only such party. Callinan J so held in Arundel [(2001) 179 ALR 406 at [37]]. We propose to follow this reasoning which is consistent also with the Full Court's decision in Gore .
113. Although the phrase 'played an active part in the conduct of the litigation' was used in Knight at 193, in the context of the role played by the receivers ..., the phrase is not a term of art ..., as in the case of 'the', contrasted with 'a' real party issue, it is not, in our view, necessary to demonstrate that the non-party exclusively controlled the conduct of the proceedings. It is enough to point to its role as one of the actors ... in important and critical respects."
A relevant consideration identified in Gore , but not mentioned in FPM , is whether early notice was given to the non-party that an order for costs would be sought against him: 119 FCR at 446-7, 448. This is satisfied when a director invokes the facility in UCPR Pt 7 r 7.2 because he must acknowledge in his affidavit that he is aware of this risk.
Flinn, the cases in the Federal Court, and Arundel emphasised the importance of the role of the non-party in the litigation. This must be particularly relevant where the non-party acted as advocate, solicitor, and deponent.
In FPM and other cases it has been said that the power should only be exercised in exceptional cases. Dawson J said this in Knight in the passage quoted [87] below by Sackville AJA, and the majority acknowledged "the general principle ... that an order for costs is only made against a party" but did not limit the general category in this way.
A finding that the case is exceptional involves a comparison with other cases which are not. In TGA Chapman Ltd v Christopher [1998] 1 WLR 12 CA, 20-21 Phillips LJ said:
"In the context of the insurance industry, the features to which I have just referred may not be extraordinary. But that is not the test. The test is whether they are extraordinary in the context of the entire range of litigation that comes to the courts. I have no doubt that they are."
The same point was made by the Privy Council in Dymocks [2004] 1 WLR at 2815 where Lord Brown said:
"Although costs orders against non-parties are to be regarded as exceptional, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense."
"[I]n the context of the entire range of litigation" in this State it is "outside the ordinary run of cases" to find the same person acting as advocate, solicitor and witness.
There is no reason to doubt the correctness of the actual decision in FPM and the criteria identified by Basten JA and his statements of principle were appropriate and sufficient for the decision in that case. However I respectfully decline to treat them as exhaustive or sufficient in all cases, particularly where a director has appeared as advocate for the company pursuant to UCPR Pt 7 r 7.1(2).
The general category in Knight , [10] above, was not excepted from the restriction in UCPR Pt 42 rule 42.3(3) on the power to make costs orders against a non-party. However cases excepted by para (e), where a director appeared for the company, could fall within that general category, and if so the principles adopted by the majority in Knight would be relevant to the exercise of the Court's discretion to make an order against the director.
The general category applies where the party to the litigation is insolvent, the non-party has played an active role in the litigation, and the non-party or some person on whose behalf he is acting or by whom he has been appointed has an interest in the subject matter.
These principles apply in this case. The Builder is insolvent and in liquidation. The trial Judge found that the applicant had "hands on control" of the litigation, and that no one else in the company had been present in Court. His mother, as the only shareholder, must have appointed the applicant as a director and authorised or ratified his appointment to defend the proceedings. The case was defended in her interests, and possibly in the interests of the applicant and his father as employees of the Builder.
The case was therefore one where, as the majority held in Knight , "an order for costs should be made if the interests of justice [so] require."
Sackville AJA considers [98] that it is of some importance that the applicant was not required to acknowledge that he "will be liable" if the Builder loses the case or if he fails to conduct it to the standard expected of a legal practitioner.
The Courts have not required the warning to a non-party that a costs order will or may be sought against him to be in any particular form.
An acknowledgement in stronger terms would not be appropriate because the Court could appear to be threatening directors contemplating using the procedure under UCPR Pt 7 r 7.2, nor would it be appropriate, at that early stage, for it to prejudge the cost question by indicating the orders that it might make or the circumstances which would justify such orders.
There can be many reasons why an order for costs would not be made against a director who appeared for his company. The company may be successful, the proceedings may end in a draw with no order as to costs, and even if the company loses it may satisfy the judgment and any order for costs against it.
There are a number of factors which supported the costs order against the applicant which were not referred to by the trial Judge. The underlying merits of the case lay with the plaintiff who obtained judgment against the company for $282,993.28. The Builder brought a cross-claim but the plaintiff obtained an order (T15/5/09 p7) that it provide security of $30,000 for her costs. This was not provided and the cross-claim was stayed.
The Builder had no real defence, at least not one which the applicant could identify and present. The trial Judge noted (judgment 14/5/09 p8) that the plaintiff's affidavit evidence was largely uncontested. The plaintiff tendered a report from Mr Iskawicz, a building expert, which the Judge said was not contradicted (ibid p12), although he was cross examined (ibid pp 13-14).
The plaintiff also tendered a report from Mr Towill, a quantity surveyor. He was not required for cross-examination and his evidence was not contradicted.
The applicant filed an affidavit which the Judge said was largely inadmissible (costs judgment 15/5/09 p4). He did not give oral evidence (judgment 14/5/09 p8), although he had been actively involved in the building work (ibid pp9-10). The Judge noted in his costs judgment that most of the applicant's cross-examination was irrelevant (p4), and that "to some extent the case was somewhat prolonged by ... the [applicant's conduct]".
The Judge did not refer to the time taken to hear and dispose of the unsuccessful oral application for the case to be transferred to the Consumer, Trader, and Tenancy Tribunal.
The Builder did not provide security for costs, did not retain lawyers to defend this substantial claim, did not satisfy the judgment, and went into liquidation. An inference is fairly open that the plaintiff's claim was only contested because the applicant represented the Builder.
But for his involvement the plaintiff's claim for damages could have been proved at a short ex parte hearing, and she may have elected to abandon her claim for damages and take default judgment for her claim in restitution.
Another relevant factor, not referred to in FPM , is the need to establish a causal relationship between the costs sought to be recovered and the conduct of the non-party. In Dymocks [2004] 1 WLR at pp 2813-4 Lord Brown referred to Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665; [2003] QB 1175, 1198, and to Gore 119 FCR at p 449 [53] and said:
"... their Lordships are content to assume for the purposes of this application that a non-party could not ordinarily be made liable for costs if those costs would in any event have been incurred even without such non-party's involvement in the proceedings. On the facts of this case, however, their Lordships conclude that, but for Associated's involvement, the Todds would not have pursued their appeal to the Court of Appeal and thus occasioned the costs both in that court and on the further appeal to the Privy Council."
The involvement of the applicant as advocate and solicitor for the Builder caused the plaintiff to incur the costs of a four day case.
The building contract related to the construction of a dwelling house for a newly married woman who has ended up with a worthless judgment for work that was not done or was done badly, and the costs of a four day case. With respect to those with a different opinion "the interests of justice required [the order] to be made".
I would therefore grant leave to appeal but order that the appeal be dismissed with costs.
Mine is a minority view, but I respectfully doubt that the result was one intended by the Rule Committee when the precursors of UCPR Pt 7 r 7.2, SCR Pt 4 r 4A and Pt 11 r 1A, introduced in 1997, were included in UCPR Pt 7 r 7.2 and Pt 42 r 42.3(3).
In the course of that process SCR Pt 4 r 4A(5) and Pt 11 r 1A(5) were omitted. They had provided:
"(5) Without limiting the powers of the court under section 76 of the [Supreme Court] Act the Court may make against the corporation and the authorised director any order for costs which, if the authorised director had not been a party, it would have made against the corporation."
In my opinion the result in this case, and the effect of omitting former subrule (5) from UCPR Pt 7 r 7 should be considered by the Rule Committee at an early date.
SACKVILLE AJA : This is an appeal by leave from an order made by a Judge of the District Court (Robison DCJ) that the appellant be ordered to pay the respondent's costs of proceedings determined by that Court. The appellant was not a party to the proceedings, but was a director of Belltree Constructions Pty Ltd (" the Builder ") which was the defendant and cross-claimant in the proceedings. The appellant represented the Builder in the proceedings and appeared on behalf of the Builder at the hearing in the District Court.
Background
The Builder and the respondent (" the Proprietor ") entered into a contract on 19 September 2005 for the construction of a residential dwelling on the Proprietor's land at Beacon Hill. The contract price was $583,600, inclusive of GST. According to findings made by the primary Judge, the Builder purported to terminate the contract on 12 February 2007, leaving the dwelling incomplete.
In November 2007, the Proprietor commenced proceedings in the District Court claiming damages against the Builder for breach of contract. She also claimed the return of moneys said to have been overpaid to the Builder by mistake. The latter claim was misdescribed in the pleadings as a quantum meruit claim.
On 20 February 2008, the appellant's mother, the sole shareholder in the Builder, asked the Judicial Registrar for permission for the appellant to appear before the Court on behalf of the Builder. The Judicial Registrar declined this request on the ground that the Uniform Civil Procedure Rules (" UCPR "), r 7.1(2), provides that a company may appear only by way of a solicitor or director and that if a director wishes to appear, he or she must file an affidavit in compliance with UCPR , r 7.2.
On 29 February 2008, Mr William May (" Mr May Senior "), the appellant's father, swore an affidavit in his capacity as a director of the Builder. The affidavit stated, among other things, that Mr May Senior had been authorised by a meeting of the Builder held on " 1 st of March at 9.30 am " to carry on the proceedings. It is not clear whether the meeting was held before or after the affidavit was sworn.
On 29 February 2008, the Builder filed a cross-claim against the Proprietor. It seems that at about this time the Builder filed a defence to the Proprietor's statement of claim.
On 25 March 2008, the appellant swore an affidavit in purported compliance with UCPR , r 7.2. He stated that he was a director of the Builder and that a meeting of the company held on 25 March 2008 had authorised him to carry on the proceedings on behalf of the Builder. The appellant stated, as required by r 7.2(2)(a)(iv), that he was aware, as a director, that he may be liable to pay some or all of the costs of the proceedings (see [74] below).
At some stage in the District Court proceedings the Builder's cross-claim was stayed pending compliance with an order for security for costs.
The respondent's claims against the Builder were heard over three days in the District Court, from 12-14 May 2009. The appellant conducted the Builder's defence in the District Court. He cross-examined the Proprietor and an expert witness called by the Proprietor. He also made oral submissions on behalf of the Builder.
In his ex tempore judgment delivered on 14 May 2009, the primary Judge found that only about 22 per cent of the total work had been completed, but that the Proprietor had paid to the Builder substantially more than the amount of the contract price attributable to that work. His Honour also found that some of the work was defective and required rectification. He considered that the Proprietor had made out her claims. Accordingly, the primary Judge entered a verdict in her favour for $219,160.53, excluding GST and interest.
The Costs Judgment
On 15 May 2009, the day after judgment in the substantive proceedings, the primary Judge heard an application on behalf of the Proprietor for a costs order against the Builder and the appellant jointly and severally. In a second ex tempore judgment his Honour made the order sought by the Proprietor.
His Honour noted that the Proprietor's counsel had relied on the appellant's acknowledgement in his affidavit that he might be personally liable for the costs of the proceedings. The primary Judge observed that the acknowledgement did not automatically mean that someone in the appellant's position would have to pay costs. The Court had a discretion which had to be exercised in the circumstances of the case.
The primary Judge pointed out that the normal practice in litigation is that a corporation must be represented by a solicitor. This has the advantage that legal practitioners have duties to the Court and have a " heavy burden " to ensure that the Court is not misled. In this case, the appellant had sought:
"the indulgence of the Court and he asked the Court, effectively, to depart from the general rule."
His Honour said that the appellant had been given the right to appear on behalf of the Builder. He continued as follows:
"What flows from that right to appear is a heavy responsibility, and part of that responsibility is contained within the provisions of part [7] rule 7.2 itself, and indeed, [the appellant] accepted that responsibility, that he may be liable to pay some or all of the costs of the proceedings.
I repeat, that of itself does not necessarily compel the Court to order that he meet those costs.
I have noted during the course of these proceedings that [the appellant] has had a specific and indeed, hands on control of the matter from a procedural point of view and also during the course of the conduct of these proceedings before the Court. Unfortunately, much of the case presented by [the appellant] left something to be desired, particularly when it came to the interests of, effectively, his client, if I could use that terminology, the company.
Unfortunately, his affidavit was largely inadmissible. There were irrelevant matters pursued during the course of cross-examination, and matters of that kind. It has to be said that, to some extent, the case was somewhat prolonged by virtue of that conduct.
In other words, [the appellant] had a responsibility which included a responsibility to the corporation in respect of which he was given leave to appear. He was given a responsibility which he accepted. He wanted that responsibility. He did not want a solicitor to appear for the company. He wanted to effectively run the case on behalf of the company himself.
There has been nobody else from the company, as far as I am aware, in this courtroom during the course of the hearing before me.
As far as the case law is concerned, I am not aware of any authority whereby the Court should adopt a narrow construction to what is set forth in the relevant rule. It is, therefore, a rule which needs to be considered in the broad context; a liberal interpretation should be given to it.
Each case needs to be determined on its own circumstances, but as I indicated before, [the appellant] has had a direct involvement in these proceedings, he has conducted the proceedings on behalf of the Corporation, he has made a number of submissions during the course of the hearing before me, and indeed, he has represented the company for some time leading up to the hearing before me .
Having regard to those matters to which I have adverted, particularly having regard to the way in which this matter was run on behalf of the company, it does seem to me that, having regard to the direct and personal involvement of the director, [the appellant], that he should indeed assume a joint and several liability to meet the costs ..." (Emphasis added.)
The primary Judge noted that the Proprietor had conceded that any order for costs should not include the costs of the first half-day of the hearing, since this had been taken up with argument about the appellant's right to appear. Accordingly, his Honour ordered that the Builder and the appellant be jointly and severally liable to pay the Proprietor's costs of the proceedings other than the costs of the first half-day of the hearing.
The appellant sought leave to appeal against the costs order made against him. Leave to appeal was granted by Tobias and Basten JJA on 8 December 2009. An appeal by the Builder against the orders made on 14 May 2009 and the costs order was withdrawn, the Builder having in the meantime gone into liquidation.
Legislation
Section 98(1) of the Civil Procedure Act 2005 (NSW) (" CP Act ") provides as follows:
"(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
UCPR , r 7.1(2)(a) provides that a company:
"may commence and carry on proceedings in any court by a solicitor or by a director of the company."
For the purposes of the CP Act and the UCPR , " carry on proceedings " includes defend proceedings: CP Act , s 19(2).
A person who commences or carries on proceedings in the Supreme Court or District Court as the director of a company must file with the originating process, notice of appearance or defence, as the case may be, an affidavit as to his or her authority to act in that capacity: UCPR , r 7.2(1). The affidavit made by the director must contain a statement to the effect, among other things, that:
"the director is aware that he or she may be liable to pay some or all of the costs of the proceedings." (r 7.2(2)(a)(iv).)
UCPR , r 42.3, until its repeal as from 7 May 2010, provided as follows:
"(1) ... the court may not, in the exercise of its powers and discretions under [s 98 of the CP Act ], make any order for costs against a person who is not a party.
(2) This rule does not limit the power of the court:
...
(e) to make an order for costs against a person who commences or carries on proceedings, or purports to do so, as an authorised director of a corporation."
Reasoning
Source of Power
The primary Judge appears to have assumed that the source of his power to make a costs order against the appellant was UCPR , Pt 7 r 7.2. That provision, however, merely sets out the requirements that must be satisfied by a person who commences or carries on proceedings as a director, including making an affidavit which acknowledges that the director is aware that he or she may be liable to pay some or all of the costs of the proceedings. There is nothing in r 7.2 which confers power on a court to make a costs order against a non-party.
The power to make costs orders against a non-party is conferred by s 98(1) of the CP Act . Section 98(1)(a) (" costs are in the discretion of the court ") has its origins in rules of court made pursuant to s 16 of the Supreme Court of Judicature Act 1875 (UK): see Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178, at 194, per Dawson J. Section 98(1)(b) (" the court has full power to determine by whom, to whom and to what extent costs are to be paid ") has its origins in s 5 of the Supreme Court of Judicature Act 1890 (UK): Knight , at 194-195, per Dawson J.
In Knight , the High Court held that O 91, r 1 of the Rules of the Supreme Court of Queensland 1900 (QLD), which was in substantially the same terms as s 98(1)(a) of the CP Act , conferred jurisdiction on the court to make a costs order against a non-party. The particular costs order made in that case was against the receiver of companies which had been the unsuccessful parties in the proceedings, the receivers themselves not being parties.
The holding in Knight has been applied to New South Wales legislation in substantially the same terms as s 98(1) of the CP Act : New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 (construing the now-repealed s 148B of the District Court Act 1973 (NSW)); FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340, at [202]-[203], per Basten JA (with whom Beazley and Giles JJA agreed) (also construing s 148B).
Scope of the Power
The principal question on the appeal is whether the primary Judge erred in the exercise of the discretionary power conferred under s 98 of the CP Act to make a costs order against a non-party.
Knight v FP Special Assets
The answer to this question requires reference to the reasoning in Knight . In that case, the High Court granted special leave only on the question of whether the Supreme Court of Queensland had jurisdiction to make a costs order against a non-party. Mason CJ and Deane J (with whom Gaudron J agreed) pointed out (at 181), that the Court was not concerned to examine the exercise of any discretion under the Queensland rule. Nonetheless, members of the Court made observations on the scope of the discretion to order costs against a non-party.
Mason CJ and Deane J said (at 185) that the answer to jurisdictional arguments based on the possibility of abuse of the power to order costs against a non-party was that:
"the court will and should develop principles governing the exercise of the discretion which will ensure that the jurisdiction is not exercised in such a way as to give rise to abuse."
Later (at 190) their Honours referred to the need to ensure that the " jurisdiction is exercised responsibly ".
Their Honours observed (at 192) that:
"[o]bviously, the prima facie general principle is that an order for costs is only made against a party to the litigation."
However, the authorities showed that considerations of justice, in accordance with the general principles relating to the award of costs, sometimes justified an order against a non-party, for example where the non-party was the " real party " to the proceedings. Their Honours referred to the old action in ejectment (where, because of procedural fictions, the " real party to the suit " was a non-party); a relator action commenced by the Attorney-General (where the relator is the " real party "); proceedings instituted by a solicitor without authority; and proceedings instituted by a next friend purportedly on behalf of a person who is said to be of unsound mind, but is in fact of sound mind. Their Honours also identified cases where equity recognised that it was appropriate for a non-party costs order to be made, such as where " the motion was made by a man of straw for the purpose of avoiding liability ": Oasis Hotel Ltd v Zurich Insurance Co (1981) 124 DLR (3d) 455, at 458-9 (BCCA), cited in Knight , at 192, n 78.
In re Land and Property Trust Co Plc [1991] 1 WLR 601; 3 All ER 409, a case cited with apparent approval by Mason CJ and Deane J in Knight , at 188, n 65, involved a costs order against directors who were not parties to the proceedings. In that case, the directors of a company in grave financial difficulties presented petitions for the appointment of administrators to the company and its subsidiaries. The petitions were opposed by the creditors and were abandoned shortly before the hearing. The companies were compulsorily wound up.
The trial Judge (Harman J) made a costs order against the directors personally. The case was " wholly exceptional " in that the directors had pursued the petitions against " overwhelming opposition and without reason ". The directors not only had no rational prospect of succeeding, but had acted irresponsibly, in a manner unworthy of their duty as directors to care for the assets of their companies and to protect the interests of creditors. (The Court of Appeal decision concerned only the directors' right of appeal and did not comment on Harman J's reasoning.)
In the context of their discussion of the authorities, Mason CJ and Deane J recognised (at 192-193) that there is:
"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."
Dawson J said (at 203) that it was true that in general costs are not awarded against non-parties, but that is because it is generally inappropriate to do so. His Honour said that he saw::
"nothing in the rule to prevent it being done in the exceptional case where it is appropriate to do so." (Emphasis added.)
His Honour referred (at 202) to:
"a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court. Even if the cases were confined to ejectment proceedings (and clearly they are not), the principle lying behind the ejectment cases is that the real litigant rather than the nominal party may be made liable for costs."
The judgments in Knight do not attempt to mark the outer limits of the jurisdiction to award costs against a non-party. The particular fact situation in Knight is an example of the circumstances in which an order can be made, but it is not the only illustration of an appropriate exercise of the power. Even so, their Honours were cautious about identifying other circumstances in which non-party costs orders might be made. There is no suggestion in the judgments, for example, that merely because a director represents a defendant company and the defence fails a costs order should ordinarily be made against the director personally.
FPM Constructions v Blue Mountains City Council
In FPM Constructions , to simplify the facts a little, a company sued a council for moneys allegedly due under a building contract. The council brought its own proceedings claiming damages against the company for breach of contract. The council succeeded in both proceedings. Mr Yazbek controlled the company, but was not a party to the proceedings. The trial Judge made a costs order against Mr Yazbek personally, on the grounds that he played an important and integral role in the proceedings, that he was the sole witness for the company and the that litigation was " effectively run for his benefit " (see at [207], per Basten JA.
Basten JA (with whom Beazley and Giles JJA agreed) set aside the costs order. His Honour pointed out (at [205]) that the judgments in Knight are replete with references to the " real party ". In his view (at [206]):
"it could not be said that FPM Constructions was merely a nominal party or that Mr Yazbek was the 'real party' to the proceedings. No doubt it is true, as his Honour found, that Mr Yazbek was the driving force behind FPM Constructions and was its representative for the purposes of the litigation. That does not mean, however, that the benefit of the proceedings brought by FPM Constructions for progress payments, in law, flowed to anyone other than FPM Constructions, nor that the company was other than the proper defendant in proceedings brought by the Council. Nor is the fact that Mr Yazbek was the sole director and secretary of the company inconsistent with that conclusion. Were it otherwise, the corporate veil would, in effect, be nullified at the very point at which it provides protection against personal liability for the shareholders and directors. The carefully crafted exceptions to the principle would overtake the principle itself were that the case."
Basten JA accepted (at [210]) that the principle in Knight cannot be limited to the specific circumstances of the case and that the categories of circumstances which might attract the power to make non-party costs orders are not closed. His Honour continued (at [210]):
"the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria:
(a) the unsuccessful party to the proceedings was the moving party and not the defendant;
(b) the source of funds for the litigation was the non-party or its principal;
(c) the conduct of the litigation was unreasonable or improper;
(d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest, and
(e) the unsuccessful party was insolvent or could otherwise be described as a person of straw."
Basten JA emphasised (at [214]) that the power to make a non-party costs order is only to be exercised in exceptional circumstances. He also made a point of some importance to the present case:
"In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success. The fact that it is entirely proper for legal practitioners to runs cases on a speculative basis, so long as satisfied that they have reasonable prospects of success, demonstrates that care must be taken not to apply the criteria mechanically. Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the 'interest' in its outcome or subject-matter."
The Primary Judge's Exercise of Discretion
The primary Judge in the present case clearly considered that the appellant's " direct involvement in the proceedings " as the representative of the Builder was an important factor supporting a costs order against the appellant personally. In my opinion, his Honour was in error to do so. It is not an appropriate exercise of discretion under s 98(1) of the CP Act to make an order against a director who has done no more than represent the company in the proceedings, even where the company has not been successful. There may be other factors that make it appropriate to order the director to pay the costs, for example where he or she has wilfully refused to comply with directions and thereby increased the costs incurred by the other party. But merely representing the company, especially when the company is a defendant, is not enough to justify the exercise of the power to award costs against the director personally.
It must be remembered that UCPR r 7.1(2)(a) entitles a director of a company to commence and carry on proceedings for the company, subject to filing an affidavit in compliance with r 7.2. His Honour appeared to think that the appellant had been granted an " indulgence " by the Court, which had permitted a departure from the general rule that a corporation must be represented by a solicitor. This was incorrect. The appellant, subject to compliance with r 7.2(1), was entitled as of right to appear on behalf of the Builder and did not require the leave of the Court. The primary Judge therefore was not entitled to make a non-party costs order against the appellant by reason of any " indulgence " shown to him by the Court.
Nothing in Knight supports the proposition that it is a proper exercise of the discretion under s 98 of the CP Act to make a non-party costs order against a director of a company who does no more than represent the company unsuccessfully in legal proceedings. Furthermore, to subject the director to such a costs order in these circumstances would be inconsistent with the reasoning of Basten JA in FPM Constructions , at [206], [210]. While it does not appear that the director in FPM actually represented the company at the trial, mere representation of a company by a director would not satisfy any of the five criteria stated by Basten JA. I do not suggest that the criteria formulated by Basten JA are or were intended to be exhaustive. Nonetheless, they provide a useful guide in cases such as the present.
Mr Sirtes SC, who appeared for the Proprietor, sought to overcome this difficulty by relying on UCPR , r 7.2(2) and on the affidavit made by the appellant in purported compliance with the rule. In particular Mr Sirtes relied on the appellant's acknowledgment that he was aware " that he ... may be liable to pay some or all of the costs of the proceedings ". (It is doubtful whether the affidavit satisfied the requirements of r 7.2(2) as the annexed resolution does not appear to comply with r 7.2(2)(a)(ii). However, nothing turns on this.)
I accept that, depending on the circumstances, it may be appropriate to take into account an acknowledgment by a director in the form required by r 7.2 when considering whether to make a non-party costs order against the director. But it is necessary to appreciate what the acknowledgement does and does not say. The appellant 's affidavit in this case records only his acknowledgment that he may be liable to pay some or all of the costs of the proceedings. It does not say, for example, that he will be liable if the Builder loses the case or if he is found to not to have complied with the professional standards expected of a legal practitioner.
It is quite correct to say, in view of the High Court's decision in Knight , that in some circumstances a director who chooses to represent his company in court may be liable to pay the costs of the successful party in the proceedings. The critical question, however, is: in what circumstances? The answer depends on the proper construction and application of s 98(1) of the CP Act .
An acknowledgment signed by a director of a company in conformity with r 7.2(2) does not change the principles governing the proper exercise of the discretion conferred by s 98(1). The acknowledgment may be important in a particular case, for example, where a director disputes an application for a non-party costs order on the ground that he or she did not know that an order could be made against a non-party. But if it is not otherwise a proper exercise of discretion to make a costs order against a director merely because he or she exercises the right to represent the company, the signing of an acknowledgment in the form required by s 7.2(2) does not alter the position.
The primary Judge also considered it relevant that " much of the case presented by [the appellant] left something to be desired " and that " to some extent, the case was somewhat prolonged by virtue of [his] conduct ".
Although a non-legally qualified director does not owe the same duties to the court as a legal practitioner, it is no doubt correct that the manner in which the director conducts legal proceedings on behalf of a company could justify a costs order against him or her personally. If, to take an example already given, the director repeatedly and flagrantly ignores court directions, thereby prolonging the proceedings and causing the other party to incur substantial and irrecoverable costs, a non-party costs order may well be appropriate.
In this case, however, the primary Judge did not find that the appellant engaged in conduct that was so reprehensible or inappropriate that a non-party costs order should be made against him. The criticisms made of the appellant's conduct of the proceedings, if made in relation to a legal representative, would have fallen well short of the sort of conduct that justifies a costs order against a legal practitioner personally: cf Flower & Hart v White Industries (Qld) Pty Ltd [1999] FCA 773; 87 FCR 134. If every legal practitioner who attempted to adduce inadmissible evidence or who asked irrelevant questions was made the subject of adverse costs orders, the courts would do little but adjudicate costs applications. Furthermore, beyond a general observation that " to some extent, the case was somewhat prolonged by [the appellant's] conduct ", his Honour did not did not quantify the additional costs, if any, that had been incurred as the result of that conduct. Nor is it clear whether the reference to " prolongation " of the proceedings was intended to make a comparison with the time that a competent legal practitioner would have taken or with some other standard.
The Builder's cross-claim was stayed because it had failed to comply with an order to provide security for costs. However, the primary Judge did not suggest that a costs order against the appellant could be supported on the ground that the Builder was unable to meet any adverse costs order itself. Similarly, the primary Judge did not suggest that a non-party costs order should be made because the appellant was the only person with a financial interest in the Builder and that he was defending the proceedings exclusively for his own benefit. Whether or not that would justify a costs order against a non-party director (a matter on which I express no view), in this case the evidence showed that the appellant was not a shareholder of the Builder. All shares were held beneficially by his mother.
No doubt there may be circumstances in which a non-party director can be regarded as being the person who will benefit financially from the proceedings to which the company is a party, even though the director is not a shareholder. However, in the present case, in substance all that is known is that the sole beneficial shareholder in the Builder is the appellant's mother and that the appellant was a director of the Builder. The financial arrangements between them were not the subject of any findings or, for that matter, evidence. Certainly the present case is different to Yates v Boland [2000] FCA 1895, referred to by Handley AJA. There the costs order was made against a director who was found by the trial Judge to have been not only a shareholder entitled to a majority of votes at a general meeting, but in " effective control of [the applicant company] since its incorporation ": see at [13].
Mr Sirtes correctly did not submit that (the now-repealed) r 42.3 altered the principles governing the exercise of the discretion conferred by s 98(1) of the CP Act to make a costs order against a non-party. At the relevant time, r 42.3(1) stated a general rule that the Court was not, in the exercise of its powers and discretions under s 98 of the CP Act , to make an order for costs against a non-party. Rule 42.3(2) provided for exceptions to the general rule. One exception was that r 42.3(1) did not limit the power of the Court to make a non-party costs order where a person commenced or carried on proceedings, or purported to do so, as an authorised director of a corporation (r 42.3(2)(e)). Rule 42.3(2)(e) was not intended to alter the scope or nature of the power conferred by s 98, but was intended simply to preserve the power of the court to make a non-party costs order against a director commencing or carrying on proceedings on behalf of a corporation.
Conclusion on the Non-Party Costs Order
In my opinion, the primary Judge's exercise of the discretion conferred by s 98(1) of the CP Act miscarried. His Honour incorrectly regarded the appellant's unsuccessful representation of the Builder, without more, as a basis for making a non-party costs order against the appellant. His Honour also incorrectly assumed that the appellant, as a director, had been granted an " indulgence " by the Court to represent the Builder. That assumption played a part in the primary Judge's conclusion that he should make a non-party costs order against the appellant.
The primary Judge further erred in not taking into account the principles articulated in FPM Constructions , which builds on the analysis of the High Court in Knight . His Honour may have been deflected from those principles because he was not referred to the correct statutory source of power to make the non-party costs order. Be that as it may, he did not consider whether any of the indicia identified in FPM Constructions supporting a non-party costs order were present.
In some cases where the exercise of a discretionary power has miscarried, it is appropriate to remit the proceedings to the trial court for re-exercise of the power according to law. However, in the present case the Proprietor has had the opportunity to adduce such evidence as she wished on the costs application and to invite his Honour to make findings that could support a non-party costs order against the appellant. The Proprietor has not filed any notice of contention seeking to uphold the costs order on some other basis. Nor did Mr Sirtes suggest that his Honour declined or failed to make any findings of fact sought by the Proprietor. In these circumstances, this Court should reconsider the Proprietor's application for an exercise of the power conferred by s 98(1) of the CP Act to make a non-party costs order against the appellant.
It will be apparent from the reasons given earlier that the findings made by his Honour as to the role played by the appellant in the proceedings and his conduct in representing the Builder fall well short of findings that would be needed to justify a costs order against him. The Builder was the defendant in the proceedings determined by the primary Judge. The appellant did not propound a claim at the hearing on behalf of the Builder. The relatively mild criticisms of the appellant's conduct of the proceedings do not demonstrate that he acted so unreasonably that he should be required to pay all the costs of the Proprietor (on the usual basis). The findings certainly do not establish impropriety.
As I have pointed out, the criteria identified by Basten JA in FPM Constructions are not intended to be and cannot be exhaustive and that other factors may bear on the exercise of the discretionary power in a particular case. Nonetheless, it is significant that, even taking into account the primary Judge's criticisms of the appellant's conduct of the proceedings, none of the five criteria is satisfied in this case.
I should add that the facts of each of the principal cases referred to by Handley AJA are, in my respectful opinion, materially different from the present case. I have already indicated that the director in Yates v Boland, independently of the circumstance that the company in that case was the moving party, had legal and de facto control of the company. There is no finding to that effect in the present case.
Flinn v Flinn [1999] VSCA 134; [1999] 3 VR 712, involved the costs of an appeal in which the nominal appellant was mentally incompetent: see at [136] ff, esp at [161], per curiam . A non-party costs order was made against the appellant's son. The son was responsible for instituting and prosecuting the appeal and controlled the proceedings. The son also financed the appeal and had a substantial personal financial interest in the outcome. His mother had no assets to pay the costs of the unsuccessful appeal.
In Kebaro Pty Ltd v Saunders [2003] FCAFC 5, a non-party company (Kebaro) was ordered to pay the costs of a complex trial in which the applicants were the Chapmans, the controllers of Kebaro, and another Chapman company (Binalong). Binalong was in liquidation. The trial Judge found, inter alia, that the Chapmans were " people of straw "; Kebaro actively supported the litigation by advancing large sums for disbursements and counsel's fees; Kebaro's funds were thereby placed at risk; without Kebaro's support the litigation could not have continued; Kebaro had a financial interest in the outcome of the proceedings, both in relation to the moneys advanced by it and in avoiding liability under security it had provided; and the Chapmans had arranged their affairs so as to obtain financial support from particular sources, but so as not to expose those sources to a costs order: at [37], per curiam.
In Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; 119 FCR 429, the trial Judge refused to make a non-party costs order against a litigation funder. The funder had provided financial assistance for an applicant (that is, the moving party) seeking an award of damages. The agreement between the parties provided for the funder to receive eight per cent of any award of damages. The funder also agreed with the applicant that it would pay the applicant's costs and the respondent's costs (that is, the costs of the party sued). The Full Federal Court allowed the respondent's appeal. Their Honours considered that the funder's entitlement to share in the proceeds of the litigation and its agreement with the applicant to pay the respondent's costs were " factors of material importance " in the exercise of the Court's discretion: at [62], per curiam. The funder's interest in the litigation was as a " commercial investment ": at [64].
The Proprietor has not established a basis for the Court to exercise its power to make a non-party costs order against the appellant. It follows that the appeal must be allowed.
The " Jurisdictional " Question
The Argument
The appellant's notice of appeal raised what he described as a jurisdictional issue. The ground relied upon was that he had asked the District Court on behalf of the Builder on the third and last day of the hearing, to transfer the proceedings to the Consumer, Trades and Tenancy Tribunal (" Tribunal "), but that the District Court had incorrectly declined to do so. In consequence, so the appellant contended, the District Court lacked jurisdiction to make orders against the Builder and also lacked jurisdiction to make a non-party costs order against the appellant.
The appellant's transfer application to the District Court was based on s 48L of the Home Building Act 1989 (NSW) (" HB Act ") which relevantly provides as follows:
"(1) This section applies if a person starts any proceedings in or before any court in respect of a building claim and the building claim is one that could be heard by the Tribunal under this Division.
(2) If a defendant in proceedings to which this section applies makes an application for the proceedings to be transferred, the proceedings must be transferred to the Tribunal in accordance with the regulations and are to continue before the Tribunal as if they had been instituted there."
The Home Building Regulation 2004 (NSW), reg 78, provides for notice of a transfer to be given to the Registrar of the Tribunal, but otherwise is not relevant for present purposes.
Having regard to the conclusion I have reached, it is not necessary, for the disposition of the appeal, to decide the appellant's jurisdictional argument. However, a jurisdictional challenge should always be addressed. I assume for this purpose, without deciding, that the proceedings in the District Court were with respect to a " building claim ": see HB Act , s 48A(1).
The Transfer Application at the Trial
The appellant gave notice of the transfer application to the solicitor for the Proprietor shortly before the start of the third day of the District Court hearing. The primary Judge pointed out to the appellant that he had made the application at the very last minute in a case that had been going for two years. In response, the appellant asserted that he had become aware of s 48L of the HB Act only the previous evening.
Counsel for the Proprietor invited the primary Judge to deal with the application on a procedural basis. He submitted that the application had not been made in accordance with the UCPR and that the appellant should be refused leave to make a transfer application at such a late stage of the hearing. Counsel referred in particular to UCPR , Pt 18. Rule 18.1 requires an interlocutory or other application to be made by motion unless the rules otherwise provide, while r 18.4 requires a notice of motion to be served at least three days before the date fixed for the motion, unless the court orders otherwise. Rule 18.2(c) confers a discretion on the court to dispense with a notice of motion.
The primary Judge delivered an ex tempore judgment in which he concluded that there was no basis for departing from the procedural requirements in UCPR , Pt 18. He therefore refused to entertain the appellant's motion. His Honour observed that the application had " caught everybody by surprise ". He also observed that the rules serve a purpose:
"they are there to ensure forensic diligence on the part of all concerned in litigation to ensure that matters are dealt with in a timely, efficient and cost-effective manner."
His Honour continued as follows:
"Notwithstanding the purported ignorance of the law and the rules, the fact of the matter is the court needs a sound basis in order to entertain the application at the outset. It is clear to me that this is a matter which should have warranted a motion sooner in time rather than at such a late stage. If I were to entertain this application in the way that it has been made that would completely undermine the objects of the act and place this court and the parties in clear contravention of the well settled principles which have been clearly set out in the legislation.
I am of the view that this is a matter that should have been dealt with by way of a motion with supporting affidavits and clearly that has not been done. Other than ignorance of the law, there has been no other indication as to why that has not been done."
Reasoning
In Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394, Gaudron J quoted (at 482) with approval the observation of Darley CJ in Phillips v Martin (1890) 11 NSWLR 153, at 158, that:
"a man may by his conduct waive a provision of an Act of Parliament intended for his benefit."
Her Honour characterised (at 483) this principle as neither election nor estoppel. The principle applies where a party has taken inconsistent positions, rather than asserted inconsistent rights.
Gaudron J also pointed out (at 483) that:
"[a] party to litigation who has failed to object that a condition attaching to the exercise of jurisdiction has not been satisfied, or that the proceedings were irregularly instituted may, by reason of his subsequent participation in the proceedings, be precluded from later raising the defect."
One of the authorities cited by her Honour in support of this proposition was Moore v Gamgee (1890) 25 QBD 244. In that case, the County Courts Act 1888 (UK) provided that a County Court action could be commenced in the district within which the defendant resided or carried on business at the time the action was commenced. An action could be commenced by leave in a district, if the defendant had resided or carried on business in that district during the previous six months. If an action was commenced over which the court had no jurisdiction it was to be struck out.
The plaintiff commenced an action against the defendant in the district within which the defendant had carried on business during the previous six months. However, at the time of commencement, the defendant neither resided nor carried on business within the district. The plaintiff did not obtain leave to institute the proceedings. The defendant appeared and the hearing commenced, but was adjourned part heard. At the second hearing, the defendant for the first time objected to the jurisdiction of the Court. His objection was overruled and he applied for a writ of prohibition.
Cave J, with whom AL Smith J agreed, said (at 246-247) that there were two senses in which it could be said that a court has no jurisdiction to entertain an action:
"first, where under no circumstances can the Court entertain the particular kind of action, as in cases within s 56 of the Act - that is, libel, slander, seduction, or breach of promise of marriage; secondly, there are the cases ... where under certain circumstances leave can be given to bring an action which the Court could not otherwise entertain; in these cases there is no want of jurisdiction over the subject-matter of the action, but leave is required in the particular case before the Court can entertain the action, and it is an objection, which may be taken to the hearing of the action, that the defendant does not dwell or carry on his business within the jurisdiction, and leave has not been obtained."
Cave J considered that there was an analogy with a case where a defendant was served outside the jurisdiction. In the latter case, if the defendant took any step in the proceedings, other than to set aside service, he or she waived the objection to want of jurisdiction. The position in the County Court was similar and the defendant could waive the objection to jurisdiction by taking any step in the proceedings before applying to dismiss the action. Cave J cited In re Jones v James (1850) 19 LJQB 257, where Erle J had said that jurisdiction is sometimes contingent and that if a defendant does not object at the proper time, he or she cannot afterwards exercise the right of destroying the jurisdiction. See also Broad v Perkins (1888) 21 QBD 533; Eyres v Butt [1986] 2 Qd R 243; K R Handley, Estoppel by Conduct and Election (2006), at 15-012.
In the present case, s 48L of the HB Act expressly confers a right upon a defendant in proceedings in respect of a building claim to apply to transfer the proceedings to the Tribunal. It is a matter for the defendant whether or not to apply. If an application is duly made, the proceedings must be transferred. However, there is nothing in s 48L which denies the District Court jurisdiction in respect of a building claim. The District Court has jurisdiction to hear and determine building claims regardless of whether they could have been brought in the Tribunal.
The appellant, acting on behalf of the Builder, could have applied before the hearing commenced to have the proceedings transferred. Perhaps he could have applied at the commencement of the hearing. But, having participated in the hearing for two days, the Builder had clearly waived its entitlement to apply to the District Court to transfer the proceedings. If the position were otherwise, the Builder could have waited until the hearing concluded and, having formed the view that it was likely to lose, required the Court to transfer the proceedings to the Tribunal. This cannot have been the legislative intention.
The primary Judge's refusal to transfer the proceedings did not deprive the District Court of jurisdiction to hear and determine the claim against the Builder. Nor did it deprive the Court of jurisdiction to make a non-party costs order against the appellant.
I should add that no error has been established in the refusal of the primary Judge to dispense with the procedural requirements of UCPR , Pt 18 or in the refusal to entertain the transfer application. Had the application been entertained, the correct decision would have been to dismiss it.
Conclusion
The appeal must be allowed. The order made by the primary Judge on 15 May 2009 that the appellant be jointly and severally liable with the Builder to pay the Proprietor's costs in the District Court proceedings be set aside. The Proprietor must pay the appellant's costs of the appeal. The Proprietor, if otherwise qualified, is to have a certificate under the Suitors Fund Act 1951 (NSW).
Since writing the above, I have seen [53]-[55] of Handley AJA's judgment. I do not know what the subjective intentions of the Rule Committee may have been. However, I would agree with Handley AJA the policy issue identified by him may well be worthy of consideration by the Rule Committee.
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