Milpurrurru, George v Indofurn Pty Ltd
[1997] FCA 438
•27 MAY 1997
CATCHWORDS
Costs - whether successful respondents should pay applicants’ costs attributable to issues unreasonably disputed and for time wasted at trial by respondents’ conduct - whether unsuccessful respondents ought to pay successful respondents’ costs - whether there should be a Bullock order or a Sanderson order - relevance of the insolvency of the unsuccessful respondents
Bullock v London General Omnibus Co. [1907] 1 KB 264
Sanderson v Blyth Theatre Co. [1903] 2 KB 533
Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240
Lackersteen v Jones (No.2) (1988) 93 FLR 442
Daniels v Anderson (1995) 37 NSWLR 438
Bankamerica Finance Ltd v Nock [1988] AC 1002
Norwest Refrigeration Services Pty Ltd v Bain Dawes (W.A.) Pty Ltd (1984) 157 CLR 149
Matter No. DG 4 of 1993
GEORGE MILPURRURRU, BANDUK MARIKA, TIM PAYUNKA and THE PUBLIC TRUSTEE FOR THE NORTHERN TERRITORY v INDOFURN PTY LTD, BRIAN ALEXANDER BETHUNE, GEORGE RAYMOND KING and ROBERT JAMES RYLANDS
von Doussa J
Adelaide
27 May 1997
IN THE FEDERAL COURT
OF AUSTRALIA
NORTHERN TERRITORY
DISTRICT REGISTRY No. DG 4 of 1993
GENERAL DIVISION
BETWEEN: GEORGE MILPURRURRU,
BANDUK MARIKA, TIM
PAYUNKA and THE PUBLIC
TRUSTEE FOR THE
NORTHERN TERRITORY
Applicants
AND: INDOFURN PTY LTD, BRIAN
ALEXANDER BETHUNE,
GEORGE RAYMOND KING
and ROBERT JAMES
RYLANDSRespondents
MINUTES OF ORDER
JUDGE MAKING ORDER : VON DOUSSA J
WHERE MADE : ADELAIDE
DATE ORDER MADE : 27 MAY 1997
THE COURT ORDERS THAT:
The third and fourth respondents pay the costs of the applicants of and incidental to the preparation of the affidavits for trial of each of the deponents to be taxed and paid on a solicitor and client basis.
The third and fourth respondents pay the applicants’ costs of the trial, other than the costs of the second, third, fourth and fifth days of the trial in Darwin and the last two days of the trial in Perth to be taxed and paid on a solicitor and client basis.
The first and second respondents pay to the third and fourth respondents the costs of the balance of the trial including the costs of and incidental to receiving the judgment and to the arguments on costs and a stay on 15 December 1994.
The third and fourth respondents pay the applicants’ costs of and incidental to the remittal pursuant to paragraph 6(b) of the order of the Full Court dated 18 April 1996.
Note: Settlement and orders are dealt with by Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT
OF AUSTRALIA
NORTHERN TERRITORY No. DG 4 of 1993
DISTRICT REGISTRY
GENERAL DIVISION
BETWEEN: GEORGE MILPURRURRU,
BANDUK MARIKA, TIM
PAYUNKA and THE PUBLIC
TRUSTEE FOR THE
NORTHERN TERRITORY
Applicants
AND: INDOFURN PTY LTD, BRIAN
ALEXANDER BETHUNE,
GEORGE RAYMOND KING
and ROBERT JAMES
RYLANDSRespondents
REASONS FOR JUDGMENT
Coram : von Doussa J
Place : Adelaide
Date : 27 May 1997
Applications for orders for costs.
On 18 April 1996 a Full Court allowed an appeal by the third and fourth respondents against the judgment which had been entered against them in favour of the applicants on 15 December 1994: see King v Milpurrurru (1996) 66 FCR 474. The Full Court varied the orders for costs in respect of the trial made on 15 December 1994. Those orders, before amendment by the order of the Full Court, read:
“(a)In respect of the pre-trial stage, the Respondents pay the Applicants costs up to the commencement of trial, including all reserved costs, on a party and party basis save that:
(i) the Respondents pay no costs in relation to the amendments to the Statement of Claim, of which there were three;
(ii) the costs of the Applicants of and incidental to the preparation of Affidavits for trial of each of the deponents be paid by the Respondents on a solicitor and client basis.
(b)In respect of the trial:
(i) the Respondents pay the Applicants’ costs of the trial, other than the costs of the second, third, fourth, fifth days of the trial (in Darwin) and the last two days of the trial (in Perth) on a solicitor and client basis;
(ii) the Respondents pay the Applicants’ costs of the trial of the second, third, fourth, fifth days of the trial (in Darwin) and the last two days of the trial (in Perth) on a party and party basis.
(c)The Applicants’ costs of and incidental to receiving the judgment and the Applicants’ costs of and incidental to today be paid by the Respondents on a party and party basis.”
The original order was varied by paragraph 6(a) of the order of the Full Court by inserting before the word “Respondents” wherever it occurs, the words “First and Second”. Paragraph 6(b) of the order of the Full Court provided:
“(b)The said proceeding so far as it concerns the costs of the appellants and the respondents inter se of the said proceeding be remitted for further hearing and determination by the Honourable Justice von Doussa.”
The appellants were the third and fourth respondents in this action. The first and second respondents did not appeal from the judgment and orders entered on 15 December 1994.
The Court has been informed that following the decision of the Full Court, an application for special leave to appeal to the High Court was filed but later discontinued. At the time of the discontinuance an agreement was reached between the third and fourth respondents and the applicants George Milpurrurru, Banduk Marika and Tim Payunka regarding the enforcement of any orders for costs between them. No agreement however was reached with the applicant Public Trustee who represents the estates of five deceased artists. Accordingly the matter was relisted before me, on 30 April 1997. Public Trustee applied for an order for costs against the third and fourth respondents in the same terms as the original order set aside by the Full Court. Although the argument in support of that application was developed in considerable detail, in short it was asserted that the original order, insofar as it ordered solicitor and client costs against the respondents, was based on the manner in which the respondents conducted the proceedings. Nothing that occurred in the appeal touched my assessment of that conduct. Insofar as the original order awarded party and party costs it was contended that only a minuscule portion of the time of the trial concerned the liability of the third and fourth respondents whose role in the transactions, the subject matter of the proceedings, was as directors of the first respondent.
The third and fourth respondents opposed orders against them and made a cross-application for an order that they be awarded their costs of the trial.
Notwithstanding the agreement that has apparently been reached regarding the enforcement of costs orders between the first three applicants and the third and fourth respondents, counsel are agreed that any order now made for costs for or against the applicants should include them all as a group. They sued as a group. They conducted the proceedings as a group, and there is nothing which relevantly distinguishes their positions. The first three applicants had notice of the applications for costs, and informed the Court by letter that they did not intend to appear or present argument.
Whilst on the one hand the applicants sought orders for costs of the proceedings in their favour against the respondents, including the third and fourth respondents, and on the other hand the third and fourth respondents sought orders for costs of the proceedings against the applicants, counsel for each of these parties in the course of submissions suggested a number of immediate outcomes which involved either Bullock orders (see Bullock v London General Omnibus Co.[1907] 1 KB 264) or Sanderson orders (see Sanderson v Blyth Theatre Co. [1903] 2 KB 533) against the first and second respondents. Since the delivery of judgment, the first respondent has gone into liquidation, and the second respondent has become bankrupt. Neither the liquidator nor the trustee had notice of the applications for costs. In these circumstances I considered that notice should be given to each of them before orders for costs are made. To that end I directed that a copy of the written submissions of each of the parties together with the transcript of argument be served on the liquidator and the trustee, and adjourned the matter to allow them to be heard if they wished. The liquidator and the trustee have now indicated that they do not intend to make submissions.
In the course of my reasons for judgment in the principal proceedings I criticised in several respects the conduct of the proceedings by the respondents: see Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 254-256 and 281. The conduct of the respondents was also addressed by counsel for the applicants when he applied for costs following judgment. In brief reasons given in support of the order for costs made on 15 December 1994 I said:
“Mr Golvan has, on behalf of the applicants, sought an order that the respondents and each of them pay the costs, including reserved costs, of the proceedings on a solicitor and own client basis.
He puts that claim on a variety of grounds. He says that there were a number of aspects of the conduct of the proceedings by the respondents in the pre-trial stage and during the trial which added greatly to the length of the proceedings. Furthermore, he says that there were aspects of the conduct of the proceedings which whilst not amounting to contempt as such, were contemptuous of the rights of the applicants to a greater or lesser degree and in that category he lays stress on the fact that the respondents, and each of them, did not admit to copyright ownership until well into the trial and also disputed the authority of the solicitors on the record for the applicants to bring the proceedings.
Each of those issues have also added further time to the trial. The particular matters that were said to have unreasonably and unnecessarily protracted the trial were the failure to admit copyright ownership in itself, the taking of the points about the authority of the solicitors which wasted time in the directions hearings and also at the start of the trial, the calling of unnecessary evidence from witnesses from Australia Post, a book distributor in Perth, a National Gallery representative, and to a large extent, to Mr Wangurra himself. There was a failure to give adequate and reasonable discovery or to address directly the real issues in discovery by the respondents, particularly the first and second respondents.
Continued complaints during the trial that the respondents and in particular the first and second respondents did not understand the scope of the case was a matter which I decided against them in the reasons for judgment. Also a failure on their part, indeed on the part of all the respondents to make any concessions on the question of infringement made it necessary to call Mr Horrocks, Mr McGuigan and other evidence...”
I held that the matters identified by Mr Golvan and in particular the failure to admit copyright ownership, the challenge to the authority of the solicitors to commence the proceedings, and the absence of proper discovery by the respondents contributed to a large extent to wasted time in the trial. I held that the decisions made by the respondents in the conduct of the proceedings on those issues were unreasonable, and should not have been made.
I also observed that there was a public interest question in the proceedings. The case was an important one being run by the AAMA as a test case to establish the entitlement of Aboriginal artists for the protection of their cultural heritage, insofar as it is expressed in the form of the art of the Aborigines. That fact in my view lent some weight to the view that the applicants should not be left too far out of pocket on the question of costs - an added reason in favour of awarding them solicitor and client costs in respect of wasted time and unnecessary steps they were forced to take by reason of the unreasonable decisions and conduct of the respondents.
I do not accept the primary submissions now made by either counsel on the question of costs. The criticisms of the respondents’ conduct were not the subject of appeal, and in my opinion that conduct disentitles the third and fourth respondents from the orders which they seek. On the other hand they have now succeeded on the issue of liability, and even though only a very small part of the trial was directed specifically to their individual liabilities I think it would be inappropriate to reinstate the order set aside by the Full Court.
On behalf of the third and fourth respondents it is submitted that they were in reality victims of the conduct of the second respondent. The second respondent without reference to them entered into the transactions the subject of the proceedings, and then kept them in the dark about the continued import and sale of infringing carpets. Once the proceedings were served on the third and fourth respondents they acted on an assurance from the second respondent that there would be no further imports. It was submitted that they left the conduct of the proceedings to the second respondent, and if the proceedings were inappropriately conducted, again they did not know of that fact. It was submitted that the third and fourth respondents were entitled to trust in the second respondent, the other director of the first respondent. Moreover, it was submitted that there was no justification for the applicants to sue the third and fourth respondents in the first place, and the Court should now find that the applicants did not act reasonably in joining the third and fourth respondents. It is submitted that they were joined as an insurance against the possible impecuniosity or inability of the first respondent to readily meet whatever award might be made against it. In that sense it was said that the decision to join them was a commercial one, and now that the claim against them had failed the applicants should bear the financial consequences by paying the third and fourth respondents’ costs.
In Lackersteen v Jones (No.2) (1988) 93 FLR 442 Asche CJ considered the authorities governing the making of a Bullock or a Sanderson order. His Honour held (at 443, 449), that a threshold test before the court could make either kind of order was that it should find that the plaintiff acted reasonably in suing the successful defendant. I do not understand counsel in the present case to argue against that threshold test. However counsel for the third and fourth respondents argued that the test was not met.
In my opinion the submissions of the third and fourth respondents overlook two important considerations:
The third and fourth respondents were two of the three directors of the first respondent. The first respondent was the principal wrongdoer in respect of the copyright infringements the subject of the action. As directors, the third and fourth respondents had duties to the company which included obligations to guide and monitor the management of the company in appropriate ways, including in the conduct of the litigation. Whilst they may not have been aware of the activities of the first respondent that constituted the copyright infringements, they were plainly aware of the proceedings which were served upon them. In the Full Court, Beazley J referred with approval to Daniels v Anderson (1995) 37 NSWLR 438 (the AWA case) and noted that Clarke and Sheller JJA concluded that there was no place in the modern law of corporations for sleeping and passive directors. Her Honour quoted salient parts of their judgment in the AWA case (at 66 FCR 474 at 493, 494). Whilst those principles do not apply to impose liability in respect of the copyright infringements on the third and fourth respondents, I consider they apply to the third and fourth respondents in respect of the conduct of the company in the defence of the proceedings. As directors, they should be held accountable in costs for the conduct of the proceedings, not excused because they were ignorant of what was happening.
Moreover, part of the conduct of the first respondent that has been the subject of serious criticism was the failure to discover company records of the kind which should have been maintained by the company, e.g. basic accounting records, copies of contracts, customs and shipping documents relating to imports, and, significantly, minutes of directors’ meetings. Absent the discovery of these documents, the trial was greatly protracted whilst the applicants subpoenaed documents from third parties. Whilst the subpoenaed documents enabled the applicants to establish the extent of the imports and damages (matters that should have been readily apparent from records of the company) the absence of any documents relating to the activities of the company and the role of the third and fourth respondents meant that the applicants were not given the documents that would normally be available to an opposing litigant. In this case, had proper discovery been made of records which the company should have maintained, those documents would probably have demonstrated the weakness of the applicants’ case against the third and fourth respondents long before the trial commenced.
The directors of the company had exclusive possession of the information and documents relating to their role as directors and to their state of knowledge. Had the third and fourth respondents disclosed their role by putting forward a positive defence, rather than merely not admitting relevant allegations in the pleadings, that would have disclosed the facts which discovery should have disclosed, but they failed to take that course.
The third and fourth respondents contend that the applicants did not act reasonably in suing them. I do not agree with that submission. Insofar as the decision to sue the directors as well as the first respondent may have been motivated by a desire to improve the prospects of recovering a verdict, the wisdom of that precaution became evident as the second respondent gave evidence which disclosed that the first respondent was penniless. The liquidation of the company shortly after the verdict added further emphasis to the wisdom of the decision. Insofar as it is contended that the joinder of the directors was not reasonable because there was no prospect in law of establishing liability, the submission is also defeated by the events which happened. The applicants succeeded against the third and fourth respondents in the first instance, and failed only by a majority decision in the Full Court. As a matter of law the proposition contended for by them was an arguable one. Moreover, had the directors performed the duties expected of them it would have been, at the least, highly probable that they would have been aware of the importations, and the company’s venture into the import of carpets. Had they in fact possessed the knowledge which would ordinarily have been expected of them as directors, they would have had sufficient knowledge to render them personally liable.
The submission, insofar as it is directed to the conduct of the defence to the proceedings, overlooks the fact that the third and the fourth respondents each filed separate appearances and defences. The third and fourth respondents each by their separate defences put in issue copyright ownership and the infringement by the company of the copyright by importation. They each appeared by counsel at the trial. The fact that they saw fit to instruct the same solicitor and counsel as the first respondent, in the events which have unfolded, may give rise to issues as to whether they should have been separately represented. However the other parties to the proceedings are entitled to assume that counsel acting on their behalf did so on their instructions, and the Court should now decide the question of costs on the same assumption. Counsel appeared as their agent, in circumstances where the agent had ostensible authority to conduct the case on their behalf.
Generally, I adhere to the following reasons which I gave in connection with the order for solicitor and client costs against the third and fourth respondents on 15 December 1994:
“It is said that they (the third and fourth respondents) took a much lesser part in the proceedings and that even if it is held that the tactical decisions should reflect upon the first and second respondents they should not reflect upon the third and fourth. I reject that submission. The failure to admit copyright ownership, the attack on the authority of the solicitors and, indeed, the general presentation of the case at trial was on behalf of the third and fourth respondents just as much as it was on behalf of the first and second and particularly the pleadings specifically raise matters of copyright ownership and authority on behalf of each of the respondents.
The third and fourth respondents failed to admit the copyright ownership when requested specifically to do so at an early stage in the proceedings and so far as the record of the court is concerned the counsel appeared as much on their behalf as on behalf of the first and second (respondents) throughout the trial.”
The respondents had been requested to admit copyright ownership as early as 30 June 1993 in a notice to admit facts. The third and fourth respondents now raise a number of highly technical arguments about the inadequacy of the language used in the request, but I do not think that this alters the substance of the point that they did not respond appropriately by admitting copyright ownership, and the infringing importations by the first respondent in relation to the carpets where the complete artwork was copied. It should be noted that in the response to the notice to admit facts dated 12 July 1993 no issue was raised as to the adequacy of the language of the request, nor was that point raised in later interlocutory hearings when counsel for the respondents continued to resist the requests of the applicants’ counsel, and the urgings of the Court, to admit facts which could not seriously be disputed.
Counsel for the applicants argue that if the original costs order is not reinstated, they should at least obtain an order awarding them solicitor and client costs against all respondents (thereby including the third and fourth respondents), in respect of wasted time and unnecessary work to which they were put by reason of the unreasonable conduct of the respondents in the defence of the proceedings, and that for the balance of the action there should be a Sanderson order in favour of the third and fourth respondents, that is an order awarding them costs, on a party and party basis, against the first and second respondents. Because of the insolvency and bankruptcy of the first and second respondents respectively, the reality is that little or nothing would be recovered under the Sanderson order by the third and fourth respondents. On the other hand the third and fourth respondents argue that they should obtain costs orders for all or most of the proceedings against the applicants, and the applicants should obtain a Bullock order giving them indemnity in respect of those costs from the first and second respondents. The practical effect of that order would be that the applicants would receive little or nothing by way of the order for indemnity.
The applicants were awarded a monetary sum of $188,640.52 against the first and second respondents. The only part of that judgment which they have recovered is the sum of $20,000 that was paid into Court prior to the trial. They are therefore substantially out of pocket already by reason of the impecuniosity of the first and second respondents, and to make a Bullock order would now impose still further hardship upon them. In a case where the substantial wrongdoer is in liquidation or bankruptcy it is necessary, in the exercise of the discretion to award costs, to have regard to the “balance of hardship” between the parties involved in the argument over costs: see Lord Brandon in Bankamerica Finance Ltd v Nock [1988] AC 1002 at 1012. Here, the third and fourth respondents were directors of the first respondent and as between them and the applicants, the balance of hardship is in favour of the applicants. It is also relevant that there was a public interest aspect in the present proceedings, and the applicants should not be further deprived of the limited fruits which they have received from the proceedings which established their rights against the first respondent.
Written submissions on the applicants’ behalf canvass as one option, the prospect of awarding costs on several different issues in the proceedings according to which party succeeded or failed. To make separate orders for costs on different aspects of the proceedings would lead to complex taxations both of solicitor and client and party and party costs. There is likely to be argument over what items of work attach to particular issues, and the argument would be made more difficult by the fact that the solicitors who were involved in the proceedings both for the applicants and for the respondents, are no longer acting. Moreover the trial took place two and a half years ago. To make separate cost orders on particular issues is a most unattractive option.
I think it is helpful to consider what costs order would be appropriate if there were no criticism to be made of the way in which the respondents conducted the defence. In this situation, I think it would be appropriate that the applicants recover their costs, which would be on a party and party scale, against the first and second respondents, and that the third and fourth respondents on a Sanderson order recover their costs against the first and second respondents. Such an order would be in accordance with decisions such as Lackersteen v Jones (No.2) and the authorities there discussed. I do not accept a submission made on behalf of the third and fourth respondents that a Sanderson order should only be made where defendants are sued in the alternative. In my view the Court has jurisdiction to make such an order in a case where the causes of action alleged against the defendants are interrelated, as they were in the present case: see Lackersteen v Jones (No.2) at 449; Norwest Refrigeration Services Pty Ltd v Bain Dawes (W.A.) Pty Ltd (1984) 157 CLR 149 at 163.
In my view such an order would be appropriate notwithstanding the liquidation and insolvency of the first and second respondents. The “balance of hardship” consideration already mentioned would justify the order.
The added complexity in this case arises from the fact that issues were run that should have been conceded, and the trial was unduly lengthened, by the conduct of the respondents. I have already rejected the submission that the third and fourth respondents should be excused from this criticism because they left the carriage of the proceedings to the other respondents. For the reasons given when the original costs order was made the respondents were at that time directed to pay, on a solicitor and client basis, the costs of the preparation of affidavits for trial of each of the deponents, and they were further ordered to pay the applicants on a solicitor and client basis, the costs of the trial, other than the costs of the second, third, fourth and fifth days of the trial in Darwin, and the last two days of the trial in Perth. That order reflected the extent of the wasted time at trial. That order was made because of the conduct of the defence, not because of the verdict entered against the respondents. In my opinion those orders should remain to reflect the adverse conduct of the respondents, including the third and fourth respondents. For the balance of the trial I consider there should be a Sanderson order made in favour of the third and fourth respondents against the first and second respondents.
For these reasons I consider the following orders should now be made in relation to the third and fourth respondents:
(1)That the third and fourth respondents pay the costs of the applicants of and incidental to the preparation of the affidavits for trial of each of the deponents to be taxed and paid on a solicitor and client basis.
(2)That the third and fourth respondents pay the applicants’ costs of the trial, other than the costs of the second, third, fourth and fifth days of the trial in Darwin and the last two days of the trial in Perth to be taxed and paid on a solicitor and client basis.
(3)That the first and second respondents pay to the third and fourth respondents the costs of the balance of the trial including the costs of and incidental to receiving the judgment and to the arguments on costs and a stay on 15 December 1994.
The orders for costs made on 15 December 1994 in favour of the applicants against the first and second respondents remain intact. Paragraph 7 of the original order dealing with costs was not varied by the Full Court in respect of the first and second respondents. The first and second respondents however incur an additional liability by reason of the Sanderson orders now made.
The applicants have substantially succeeded upon the present application for costs and there should be an order that the third and fourth respondents pay the applicants’ costs in respect of the remittal from the Full Court.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice von Doussa
Associate:
Dated:
Counsel for the applicant : Ms J Kelly
Solicitor for the applicant : Solicitor for the Northern Territory
Counsel for the respondent : Mr M Hotchkin
Solicitor for the respondent : Hotchkin Hanly
Date of hearing : 30 April 1997
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